Transaction Overview
George Smith Partners secured $6,625,000 for the refinance of a stabilized 40 unit Los Angeles apartment building. This execution offered a return of equity to our Sponsor. Fixed at 4.34% for seven years; the loan will self-liquidate and will float at 2.25% over the six-month LIBOR for the remaining 27 year term. There are two years of interest only payments and no prepayment penalty after the 5th year.
Challenges: Our subject property has a cell tower lease that had provided consistent income for many years, but a 30-day cancellation clause precluded many underwriters from counting this revenue. Debt coverage constraints that would minimize proceeds were of concern in this rising interest rate environment. The bank ordered appraisal did not reflect recent market trades.
Solution: GSP identified a regional capital source that would underwrite down to a 1.20 debt coverage ratio based on going-in cash flow. The long history of stable collections from the cell tower confirmed this as a viable reoccurring revenue stream. Our ability to lock rate during a market adjustment removed the need for lower DCR constraint. GSP also provided additional recent neighborhood sale comparables which helped prove up the market value of the property.
