Rate: Floating at 1 Month LIBOR + 2.55%
Term: 3+1+1
Amortization: Interest Only
Fees: 0.5% in/0.25% out
Prepayment Penalty: 18 months spread maintenance
LTC: 72.5%
LTV: 65%
DY: 3.7% in/7.0% out
Guaranty: Non-Recourse
Transaction Description:
George Smith Partners secured $36,950,000 in proceeds for the purchase of a 192-unit multifamily property located in an infill area of Los Angeles. The loan is structured as $32,989,000 at closing, $825,000 in interest reserve, and $3,136,000 in holdbacks for capital expenditures. The fully funded loan represents 72.5% of the project capitalization. GSP ran a competitive process among providers of bridge capital and received quotes ranging from L+255 to L+375. The selected lender had both the lowest pricing and the most amenable structure for the Borrower to complete their business plan.
Several challenges were encountered while discussing the transaction with capital providers. The Property is located in a transitional submarket, which caused some lenders to quote the deal conservatively. GSP pointed out that the market is a very close distance to multiple highly desirable neighborhoods. When the Sponsor signed the PSA, the Property had over 20% vacancy, resulting in a low going-in debt yield. This ruled out many of the usual bridge lenders because they required a 5.0% or higher debt yield at close. The selected lender viewed the vacancy as an advantage because the Sponsor could quickly renovate and turn the vacant units. The Lender stipulated only a 3.7% debt yield at close and provided an interest reserve to make up for the shortfall in the first few months. The fully funded proceeds were underwritten to a 7.0% debt yield. While all lenders required a cash management account, the selected lender did not have a debt coverage ratio test until the 12th month after closing. The DCR test also required three consecutive months of underperformance before springing cash management is triggered. The Lender also worked to provide an easy draw process that allows the Borrower to get reimbursed as units are turned.
Advisors
Related Financings
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$16,100,000 Non-Recourse Acquisition Bridge Financing for a 30-Unit Trophy Multifamily Value-Added Project; West Los Angeles, CA
October 14, 2020
Transaction Description:
George Smith Partners arranged $16,100,000 in non-recourse, acquisition bridge financing on a 30-unit trophy multifamily property in West Los Angeles, California. The Property featured significant below-market rents, deferred maintenance, and physical vacancy (in part due to roommates that decided to downsize in light of COVID-19). The value-add business plan will involve a large capital expenditure budget to renovate the Property’s exterior and units, and reposition the asset utilizing a specialist property manager focused on providing family-oriented housing product with amenities like technology integration, childcare services, and community programming. The Sponsor’s expertise coupled with the Property’s trophy location created a competitive lending environment despite the ongoing pandemic. GSP ran a robust process including marketing the deal to over 70 lenders and fielding multiple lender proposals. The non-recourse financing was sized to 70% LTC and featured a rate of 1-Month Libor plus 500 basis points for a three-year term plus extensions.
Rate: 1-Month Libor + 500 basis points
Term: 36-month term with two 6-month extension options (6.00% floor rate)
LTV: 70%
Guaranty: Non-Recourse
