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$58,820,000 Non-Recourse Ground-Up Construction of 304-Unit Luxury Multifamily Property; Preferred Equity to 87% LTC

Senior Loan
Proceeds: $41,070,000
Rate: LIBOR + 4.0%
Term: 3+1+1
LTC: 60%
LTV: 55%
Origination Fee: 1%
Recourse: Completion Guarantee Only

Preferred Equity
Proceeds: $17,750,000
Rate: Market
Term: 3+1+1
Origination Fee: 1%
Recourse: Entity Only

Transaction Description:

George Smith Partners placed a total of $58,820,000 in structured financing for the ground up development of a luxury 304-unit multifamily development. Proceeds were structured as a $41,070,000 senior construction loan and $17,750,000 of preferred equity. Together these two sources represent 87% of the cost of the project.

The non-recourse senior loan floats at a rate of LIBOR + 4.0%, while the preferred equity accrues at a market rate return. Payments on the preferred equity financing are completely deferred until a capital event occurs at project stabilization. The Preferred Equity Provider is receiving a fixed return on their investment and will not participate in any future upside. There are no repayment guarantees to either Capital Provider.

Since the market has few new multifamily properties with the projected rents, both Capital Providers required extensive market comparable data and a deep dive into the Sponsor’s experience. The business plan was proven out by the Sponsor’s recent successful development, stabilization, and sale of a 220-unit property in the same MSA but a separate sub-market. The Sponsor’s Development Team from the previous project remained intact for the subject property. Financing closed with enough time for the Sponsor to avoid incurring additional fees extending their land loan.


Related Financings

  • $7,500,000 Preferred Equity Investment to 83% LTC at a 4.94% blended coupon for the Ground-Up Development of a Class-A Multifamily Project; Saint Louis, MO

    March 3, 2021

    Transaction Description:

    George Smith Partners successfully placed $7,500,000 in preferred equity with last dollar exposure of 83% loan-to-cost ($222,000/unit) for the ground-up construction of a 205-unit, class-A apartment project in an irreplaceable location within the Central West End submarket of Saint Louis, Missouri. The preferred equity investment priced at 12.25% was sourced during the COVID-19 pandemic through an east coast real estate investment management company. GSP worked with the Sponsor to tailor a capitalization that increased leverage to a reasonable level above the 70% loan-to-cost senior loan, reduced overall project costs through minimizing the preferred return current pay portion, mitigated sponsorship risk through negotiated performance hurdles, and was highly accretive to common equity returns. Although the preferred equity investment was made during height of COVID-19 safer-at-home orders, the investor’s concerns were mitigated through the institutional sponsor’s local experience, market, and submarket performance during the pandemic, and strong project fundamentals.

    Rate: 12.25%
    Fee: 1% origination fee
    Term: 36 months with two, 12-month extension options
    Amortization: I/O
    Prepayment: Open in whole or in part at any time with a two-year minimum yield
    Guarantee: None

  • $53,900,000: $42.6MM “Non-Recourse” Construction + $11.3MM Preferred Equity Financing for 228-Unit Multifamily Development

    April 26, 2017

    Transaction Description:
    George Smith Partners secured a $42,600,000 non-recourse senior construction loan along with $11,300,000 preferred equity placement to develop a 228-unit Class A multifamily property in Orange County, CA.

    The sponsorship required a non-recourse solution at an appropriate leverage to achieve the entire project’s capitalization during a time when many lenders were pulling back on construction financing in general and reducing leverage if able to lend at all.

    GSP utilized its significant experience and deep relationships with active capital providers to secure the non-recourse construction financing. GSP was also able to secure preferred equity in lieu of sponsorship bringing in additional equity which allowed the transaction to be appropriately capitalized for the developer to hit their pro forma return on equity.

    Rate & Terms: Confidential