$9,900,000 Multifamily Refinance 5-Year Loan with Full Term Interest-Only Payments; Los Angeles, CA

Rate: 3.85% Fixed
Term: 5 Years
Amortization: 5 Years Interest-Only
LTV: 65%
DSCR: 1.20x
Prepayment: 3,1,0.5
Loan Fee: Par

Transaction Description:

George Smith Partners placed a $9,900,000 loan for the refinance of a 41-unit apartment portfolio in Los Angeles, CA. The loan is fixed at 3.85% for five years with full term interest-only payments. The term sheet was signed shortly before the COVID-19 crisis and ensuing economic volatility. Despite these conditions, the original rate and leverage were kept intact.

GSP previously sourced the acquisition bridge financing two years ago. Although the Sponsor successfully completed their value-add business plan, a number of unique challenges were encountered when closing the refinance. Shortly after the Borrower signed the term sheet, the Lender put their entire pipeline of loans on hold due to the COVID-19 pandemic. When they resumed processing the loan, they initially offered a substantial retrade. GSP was able to leverage our longstanding relationship with the Lender to maintain terms very close to the original application. The Lender also agreed to waive their loan processing fee and the cost of all third party reports. Some of the units at the Property were extremely large and the Sponsor had modified them to create a den space. As a result, a number of these renovated units were able to achieve higher rents, but it was difficult to find market comparable data. GSP obtained the necessary data and the
Lender was able to support their underwritten net cash flow.

The Lender reserved 12 months of interest only payments at loan closing, a standard condition in today’s market. However, the reserve will be used to make the loan payments and released after 6 months if certain financial conditions are met.


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    $1,400,000 of Permanent Financing for 5-Unit Apartment Building; Silver Lake, CA

    May 13, 2020


    George Smith Partners secured $1,400,000 to refinance a stabilized multifamily building in Silver Lake, CA. The Property, which was built by the Sponsor in 1991, is 100% occupied. The Sponsor has owned and managed the building for over 25 years, but this is currently the only asset in his portfolio. Refinancing provided the ability to achieve a lower interest rate and return equity to increase his liquidity position. The non-recourse financing carries a fixed interest rate of 4.05% for 5 years.


    The Sponsor’s lack of real estate experience and non-third-party property management deterred some capital providers from offering non-recourse financing. The Sponsor also had limited pre-closing liquidity which made it difficult to qualify for the most attractive rates. Lastly, the eventual lender required a 6-month interest reserve due to recent uncertainty surrounding the multifamily market.


    Even though the Sponsor has limited real estate exposure, GSP was able to highlight the strong historical occupancy that the Sponsor has been able to maintain while self-managing the subject property for over two decades. GSP identified a lender that only required liquidity equal to 5% of the loan amount to qualify for their non-recourse program. The interest reserve was structured as pre-paid interest that goes directly to pay the first six months of principal and interest payments. This avoids having a held-back reserve that would only release upon hitting certain covenants in the future.

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