LTC: 80%
Term: 2 years
Transaction Description:
George Smith Partners arranged $68,750,000 in non-recourse, senior construction financing for the ground-up development of a 270-unit, 885-bed student housing complex in Merced, CA. The Project is uniquely positioned to serve the growing enrollment of both UC Merced and Merced City College and is the only planned private student housing project in Merced. The high leverage loan will provide 80% of total project cost and significant post-closing flexibility with a capital provider who will act more like a partner than a lender from closing thru development and payoff. Challenges to the transaction included: The Project is located near
University of California, Merced where enrollment is relatively low compared to other UCs. Many capital providers want to be near larger, more established universities. The Project is in a tertiary market. Many capital providers want to be in more densely populated, urban markets. Part of the equity included EB-5 investments. Many capital providers perceive this type of investor as less desirable compared to standard, limited partner investors.
Mitigating factors: While obtaining building permits is next to impossible due to its location at the border of the local city and county municipalities, the Sponsor has already obtained their building permits. There is a limited supply of student housing which is not expected to keep up with demand due to the school’s projected future enrollment. Lastly, the Sponsorship team is well positioned because of its experience and personnel to manage the Project through to completion and stabilization.
GSP was able to arrange a high leverage construction debt solution from a capital partner that understood why the Sponsor’s and Project’s strengths mitigated the challenges. Priced off LIBOR, the two-year loan was sized to 80% of total development costs. There is no repayment guarantee. A warm-body signature was required for the completion and carve-out guarantees.
Advisors
Related Financings
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Construction Loans: $21,025,000 75% LTV, Non-Recourse Predevelopment Financing for a Land Parcel Adjacent to a Southern California University
March 14, 2018
GSP arranged the $21,025,000 ($175/Land SF), non-recourse first mortgage from a debt fund for the acquisition of an infill 2.76-acre land parcel located adjacent to a major Southern California university. The acquisition loan will be taken out with a construction loan upon receipt of entitlements for a large-scale student housing redevelopment. GSP worked with borrower and lender to tailor a unique loan structure that provides financing during the entitlement period via an interest and carry reserve. The lender was able to provide a high-leverage loan on an unentitled parcel that provides no cash flow due to the project’s streamlined “by right” entitlement process, experienced sponsorship, and strong market fundamentals. Sized to 75% of as-is value, the acquisition loan priced at 7.25% over One-Month LIBOR for the 24-month loan duration.
Rate: One-Month LIBOR + 7.25%
Term: Two years plus one, one-year extension option
Amortization: Interest only
Loan to As-Is Value: 75%
Prepayment: 12-month yield maintenance- Advisors: Nick Rogers
