Transaction Overview
George Smith Partners arranged $6,800,000 in bridge financing for the acquisition of a 50-unit 3-property multifamily portfolio in North Long Beach, California. The three properties were all late 1950s vintage properties with significant deferred maintenance and below market rents. The Sponsor’s business plan was to reposition the properties and release the units at market rents. The Sponsor required a bank lender that would only require recourse from the general partner, which constituted 10% of the equity, and not from any of the limited partners, some of whom were investing more than 25% of the equity. By emphasizing the gentrifying location and the Sponsor’s track record in the value added apartment space, George Smith Partners was able to successfully source a bank lender that was comfortable with recourse from the general partners only and who closed the transaction in 45 days.
Sized to an aggressive 72% of total cost, the two-year loan is interest only. The loan floats at Prime plus 0.5% (5.25% today) with no prepayment penalty, and the lender fee was a minimal 0.5%. Despite the portfolio’s weak cash flow during the rehabilitation period, an interest reserve was not required.
