Transaction Overview
George Smith Partners successfully placed the $5,000,000 facility to fund pools of residential properties (1-4 units) leased as rental investments. The renovated and fully occupied residential properties are located in Los Angeles County including some rougher neighborhoods.
Challenge: Because of the unique product and loan type, the terms of the loan agreement had to be drafted organically from the ground up. These pools included properties in class c/c- neighborhoods and Section 8 (HUD) tenants, neither of which are attractive to many capital providers. The Sponsor purchases properties at a significant discount to market through various distressed channels such as short sales and trustee auctions. As a result, the loan represented a significant return of equity and in some instances the Loan amount exceeded the purchase price of a specific property. Placing security interests on each home purchased in a portfolio of hundreds presents a logistical nightmare for both the Lender and Borrower.
Solution: In order to secure the financing, GSP educated the lender about the diversity of the product and tenant base and demonstrated the strong operating capabilities of the Sponsor. Ultimately the Lender became comfortable with the structure and a limited loan to cost restriction. The Lender secures its interests in the properties by way of a blanket deed of trust – an efficient and streamlined process with individual assets free from any liens or encumbrances.
