Transaction Overview
George Smith Partners arranged $68,750,000 in non-recourse, senior construction financing for the ground-up development of a 270-unit, 885-bed student housing complex in Merced, CA. The Project is uniquely positioned to serve the growing enrollment of both UC Merced and Merced City College and is the only planned private student housing project in Merced. The high leverage loan will provide 80% of total project cost and significant post-closing flexibility with a capital provider who will act more like a partner than a lender from closing thru development and payoff. Challenges to the transaction included: The Project is located near
University of California, Merced where enrollment is relatively low compared to other UCs. Many capital providers want to be near larger, more established universities. The Project is in a tertiary market. Many capital providers want to be in more densely populated, urban markets. Part of the equity included EB-5 investments. Many capital providers perceive this type of investor as less desirable compared to standard, limited partner investors.
Mitigating factors: While obtaining building permits is next to impossible due to its location at the border of the local city and county municipalities, the Sponsor has already obtained their building permits. There is a limited supply of student housing which is not expected to keep up with demand due to the school’s projected future enrollment. Lastly, the Sponsorship team is well positioned because of its experience and personnel to manage the Project through to completion and stabilization.
GSP was able to arrange a high leverage construction debt solution from a capital partner that understood why the Sponsor’s and Project’s strengths mitigated the challenges. Priced off LIBOR, the two-year loan was sized to 80% of total development costs. There is no repayment guarantee. A warm-body signature was required for the completion and carve-out guarantees.
