$36,950,000 Bridge Loan for Purchase of 192 Unit Multifamily Property; 72.5% LTC; LIBOR+2.55%; Los Angeles, CA

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.

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