$4,500,000 Perm Loan for a Troubled Asset

Transaction Description:  GSP negotiated a 5 year permanent loan for a newly constructed, 32-unit apartment project in Downtown Los Angeles. Constructed in 2008, the FDIC seized the construction lender at project completion and transferred the note to a new bank.

Challenge: The new lender extended the balloon date with a short-term mini-perm, but placed the loan in Special Serving at an 8.0% default rate, pressuring the Sponsor’s liquidity and ability to pay-off. The project is the only sub-50 unit apartment project constructed downtown in the last three years – all other projects are 100+ units. Larger projects appraised at 5.00% CAP rates although no apartment buildings in the 25-50 unit range traded for less than a 6.75% CAP rate due to their age. The Sponsorship endured multiple liquidity hits and credit issues, no longer meeting lender’s baseline underwriting.

Solution: GSP was able to use its market expertise to increase the underwriter’s range for multifamily comps and support CAP rates closer to 6.00%. GSP assisted the Sponsorship reorganization to remove one of the owners from the LLC, mitigating the negative credit. Finally, GSP was able to demonstrate that liquidity would build up from operating cash flows and a greatly reduced rate. The building appraised and the former lender was paid in full.