30-year self-amortized, cash-out refinance on a 12-Unit Student Apartment

Transaction Description: GSP arranged the cash-out refinance of a stabilized apartment building in Isla Vista, CA. All 12 units are leased to students from UC Santa Barbara. Our client requested a return of equity in this transaction.

Challenge: 1) Our client did not have liquidity or a secondary source of repayment beyond the cash flow of the subject property – two critical underwriting criteria. 2) The lender required market rents from non-student populated apartments in their cash flow assumptions. As Isla Vista is heavily concentrated with a large student population, the appraiser was forced to go outside of the market to obtain rental comps. Most of the comps used commanded a lower rent due to less demand and an inferior location.

Solution: 1) The lender became comfortable with the asset strengths to compensate for the borrower weaknesses. The consistent historical cash flow and superior property location mitigated the requirement for secondary source of repayment. 2) GSP contacted prominent management companies in the area to identify rental comps closer to what the subject property had been collecting. These comps allowed the appraiser to justify a higher gross rental potential for non-student rentals.