$34,000,000 Dallas Multifamily Acquisition Fixed at 5.15% w/Full Term Interest Only

Rate: 5.15% fixed
Term: 10 years
Amortization: 10 years Interest Only
Prepayment Penalty: Defeasance
LTV: 65%
DCR: 1.4x
Debt Yield: 7.75%

Transaction Description:

George Smith Partners secured a $34,000,000 permanent loan for the acquisition of a 273 unit Class A multifamily property in Dallas, TX. The 10 year loan is priced at 5.15% and fixed for ten years, with full term interest only. The Borrower executed their purchase and sale agreement in October 2018 as part of a 1031 exchange. While in due diligence the cash flow declined due largely to new construction coming on-line. In addition property taxes were re-assessed at a higher rate. GSP worked with the lender as well as the rating agencies to demonstrate the historical occupancy (95%+) and mitigate the loss in net cash flow from the rise in operating costs. The borrower was able to rate lock at an all-in rate less than applied for, with full proceeds, during the last week of 2018. The transaction closed once business commenced in full in 2019.

Advisors

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    Transaction Description:

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    Term: 2 Years
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  • Expand

    $5,060,000 Permanent 19 Unit Multifamily Acquisition Loan; 5 years Interest Only

    January 24, 2018

    Transaction Description:
    George Smith Partners secured $5,060,000 of non-recourse acquisition debt for the purchase of a 19-unit multifamily property in Los Angeles. The loan has interest only payments at a fixed rate of 3.92% for the first 5 years, before switching to a 30-year amortization. The lender provided non-recourse execution and a short prepayment penalty structure.

    Challenges:
    The property is located in a prime Los Angeles location, but low tenant turnover had resulted in one third of the tenants paying less than 50% of market rent. As a result, the property was income constrained. Many lenders stressed their cash flow at a rate higher than their current note rate, resulting in limited proceeds. The seller had upgraded several units and classified the cost as an operating expense on historical P&Ls. The property had a minor deferred maintenance issue that created some uncertainty during the appraisal inspection.

    Solution:
    GSP identified a Capital Provider that sized their proceeds at the actual note rate, rather than a stressed underwriting rate. The selected lender was also able to underwrite down to a 1.15 DCR, compared to the 1.20 constraint offered by other institutional providers. This resulted in considerably higher proceeds. Invoices were obtained for the unit upgrades which allowed the exact amount of capital expenditures to be deducted from operating expenses. It was confirmed that the deferred maintenance issue was disclosed to potential buyers during the bidding process, thus establishing that the sale price was inclusive of the cost of the repair.

    Rate: 3.92% fixed for 5 years; floating at 6 month LIBOR + 2.25%
    Term: 30 years
    Amortization: 30 years
    LTC: 65%
    Interest Only: 5 years
    Prepayment Penalty: 3, 1
    Origination Fees: Par
    Guarantee: Non-Recourse

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