Shahin Yazdi placed the 70% of purchase debt for a 55 unit multifamily brick building located in the mid-Wilshire district of Los Angeles. The non-recourse loan is fixed for seven years at 4.125% and offers three years of interest only, open to prepayment without penalty after the IO term. The lender did not require an earthquake risk assessment on the brick asset.
Challenge: The subject had come out of the Los Angeles controlled REAP (Rent Escrow Account program) two months prior to going under contract. Most capital providers believe this program leads to deferred maintenance as rents are reduced by half and tenants are incentivized to delay repairs. Although no longer under REAP control, many tenants were paying below contract rent resulting in a high economic vacancy. Historical reporting was inadequately done while the property was in REAP.
Solution:GSP focused on the recently completed capital improvements that were required to exit the REAP control. DCR funding requirements were cut to a 1.20 on actual with a repayment guarantee required until a 1.30 DCR is reached. MAI estimates on operating expenses were used for underwriting and loan sizing purposes.
