$7,400,000 Interest Only Refinance for a Multifamily Property; 74% LTV at Breakeven DSCR; Venice Beach, CA

Rate: 5.00%
Term: 30 years
Amortization: Interest Only
LTV: 74%
DCR: Breakeven, 1.0:1.0
Lender Fee: $2,730

Transaction Description:

George Smith Partners arranged a $7,400,000 refinance for a multifamily property in Venice Beach. The proceeds provided 74% leverage and was fixed at a rate of 5.00% with interest only payments. Over the past 15 months, the Sponsor renovated four of the units and upgraded the electrical and plumbing. GSP sourced a capital provider that understood the value of the location and the Subject Property along with the strength of the Sponsor in order to mitigate a breakeven debt service coverage ratio and a high loan to value.

Challenges:
The Sponsor was traveling for work in another country when loan documents were ready to be signed. Due to the Sponsor’s busy schedule, they were unable to go to a U.S. Embassy to sign loan documents and would not return from their trip for over 3 months.

Solutions:
GSP was able to get the Lender comfortable in allowing the Sponsor’s Power of Attorney (POA) to sign loan documents. The Lender has never allowed a POA to act as signer on behalf of a Sponsor and was hesitant to allow for a POA to sign for a new Sponsor. After many conversations GSP was able to convince the Lender to allow the POA to act as signer and even agreed to waive their internal legal fees during this process.

Advisors

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    June 20, 2018

    Transaction Description:
    George Smith Partners arranged the refinance of Colony Townhomes, a 752-unit multifamily property located in Canyon County, California. The refinance proceeds replaced a HUD loan, also previously arranged by GSP, with a remaining term of 23 years and with pre-payment penalties. Sized to 65% of value, the non-recourse, 10-year, interest only loan is fixed at 4.29%.

    Challenge:
    The Sponsor wanted to seize the opportunity to cash out significant appreciated equity, while locking in low interest rates in a rising interest rate environment. The early refinance meant that the Sponsor would have to incur the pre-payment penalty. The recent fluctuations in the 10-year Treasury spurred additional urgency in the transaction.

    Solution:
    The Sponsor’s original HUD loan was priced at 3.75% with over 20 years remaining. Through analysis, GSP determined that the interest rate savings for a new 10-year loan would easily offset the early prepayment costs of the existing loan, as well as provide for the major cash out the Sponsor was hoping to achieve. Once the Sponsor decided to proceed, Rate Lock was accomplished in 14 business days and the loan closed 21 days later.

    While an early refinance does not make sense in every situation, frequently, the opportunity to liberate trapped equity as well as lock in long term fixed rates ahead of expected further rate increases offsets the prepayment penalty cost incurred by refinancing prior to the open prepayment window.

    Rate: 4.29% Fixed
    LTV: 65%
    Term: 120 months
    Amortization: Interest Only
    Guarantee: Non-Recourse
    Prepayment Penalty: Yield Maintenance

  • Expand

    $233,600,000 Cash Out Refinance of a 1,359 Unit Downtown Los Angeles Multifamily Portfolio; 10-Years Interest Only at 4.02%

    February 7, 2018

    George Smith Partners arranged the refinance of Medici and Orsini I, two multifamily properties totaling 1,359 units located in Downtown Los Angeles. GSP advised the Sponsor to refinance the existing loans which were at 5.5% and 5.1%, respectively, with less than two years remaining, to take advantage of low interest rates in a rising rate environment. Upon analyses of interest rate savings over a 10-year term, GSP determined that the new interest rate payments would offset the early prepayment costs. In addition to securing long-term, fixed rate 10-year loans, the refinancing generated significant net cash proceeds from the appreciated equity of the two properties. Sized to 60% of value, the interest only, non-recourse loans are fixed at 4.02%.

    Rate: 4.02% Fixed
    LTV: 60%
    Term: 120 months
    Amortization: Interest Only
    Guarantee: Non-Recourse
    Prepayment Penalty: Yield Maintenance

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