Rate: Fixed for 5 years @ 4.515%; floating @ 6 Month LIBOR+2.25%
Term: 30 years
Amortization: 30 years after 2 Years of Interest Only Payments
LTV: 65%
Prepayment Penalty: 3,2,½
DCR: 1.15x
Transaction Description:
George Smith Partners secured $7,125,000 in proceeds for the refinance of a 50-unit multifamily property located in Los Angeles. Fixed at 4.515% for a period of 5 years, the loan self-liquidates at 6 month LIBOR plus 2.25% for the remaining 25 year term; there is no balloon date. Two years of Interest Only payments precede loan amortization. Sized to a 1.15 Debt Coverage Ratio, proceeds were coverage constrained. Prepayment steps down from 3% with no penalty after the third year.
Although the building was previously retrofitted, several capital providers required a new PML earthquake risk assessment study due to the masonry construction. As cap rates continue their compression, cash flows are often the limiting constraint for sizing loan proceeds. Industry standard DCR constraints are limited to 1.20x or 1.25x and often use an inflated rate over the actual indexed note rate.
The selected lender did not require any additional structural reports. Our underwriter allocated credit to our Sponsor for their success in fulfilling their business plan over the past two years; the balance sheet basis was not an underwriting factor. Net cash flow included the Property’s higher rental income as well as previously unreported RUBs income, parking income, and laundry revenue. A quoted competitive spread of 160 basis points over the 5 year swap rate demonstrated the Capital Provider’s belief in this location and sponsorship. Our 1.15 DCR constraint resulted in proceeds above the rest of the market.
Advisors
Related Financings
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$80,228,000 Cash-Out, Fixed-Rate Refinance of a 297-Unit Multifamily Property; 10-Years Interest Only at 4.20%
September 19, 2018
Transaction Description:
George Smith Partners successfully placed a 10-Year, Cash-Out, Fixed-Rate refinance of a 297-unit multifamily property located in Downtown Los Angeles, California. This loan refinanced a 10-Year floating rate loan with a remaining term of 8 years, also arranged by GSP.
Two years ago the Sponsor decided on a variable rate loan and paid an early prepayment penalty on his prior loan, allowing for a significant cash-out and reduction in interest carry. Our client benefited from lower interest rates for the past two years, however, as the long-term interest rates began to increase they decided to switch to a long-term fixed-rate strategy.
There were two objectives for this transaction: 1) leverage appreciated equity, and 2) replace floating rate risk with a long-term fixed-rate. Recent fluctuations in the 10-year Treasury prompted additional urgency in the transaction and GSP moved quickly to arrange the new loan as soon as the former loan’s two-year lockout period expired. Sized at 55% of value, the non-recourse, interest-only loan is fixed at 4.20% for 10 years.
Rate: 4.20% Fixed
Term: 120 months
Amortization: Interest-Only
LTV: 55%
Guarantee: Non-Recourse
Prepayment Penalty: Yield Maintenance- Advisors: Gary M. Tenzer
