California

George Smith Partners placed the construction debt \[$35,000,000\] and mezzanine financing \[$17,000,000\] for the ground-up development of a Class A apartment community in Wildomar, California. The project encompasses 312 units spread over 18 buildings, and recreational center that includes two resort-style pools. The land is fully-entitled, permitted and shovel-ready for development. The property is adjacent to a major anchored neighborhood shopping center, enjoying closer proximity to employment centers in Riverside and Ontario than competing residential communities in the corridor. Challenge: The sponsorship, which had owned this parcel since 2008, had been unable to secure construction financing due to the economic downturn. Lenders in this particular sub-market had taken a significant hit and have been very slow to re-invest. The sponsor was limited by its Joint Venture Partner to only incur a ‘set’ investment amount, and as such needed at least $52M of proceeds to move the project forward. The Sponsor required financing guaranteed solely at the entity-level, providing protection to the Sponsor’s principals. Solution: GSP conducted extensive market research and analysis and proved out the market’s viability for new multifamily development. Our economic research characterized Wildomar as an extremely strong rental market due to a shift in the demand drivers from “For Sale” housing to rentals. Once we ascertained the viability of the absorption, rental rates and costs; we identified sources that are familiar with this sub-market. Initially, leverage deemed a singular capital provider as unlikely for the loan-to-cost required. GSP dual tracked a structured loan that offered appropriate senior leverage with a mezzanine component to bring the leverage to the requested amount. Due to the low interest rate environment, the blended cost of capital is 7.14%, comparatively low for this level of total capitalization. GSP negotiated the entity-level guaranty by emphasizing the Sponsorship’s extensive track record and substantial liquidity to assure the guarantee is limited exclusively to the business assets of the guaranteeing entity.