Transaction Overview
George Smith Partners secured $7,100,000 for the purchase of a stabilized 58 unit Los Angeles apartment building. Fixed at 4.02% for seven years, the loan self-liquidates and will float at 6 month LIBOR plus 2.35% for the remaining 23 years of the term. Prepayment steps down from 5% and has no prepayment penalty the final two years of the seven year fixed period.
Challenge: Our subject property had been operated with unusually high expenses. These expenses included an exorbitant security contract and an onsite manager that received an above-market salary in addition to free rent. The seller had also not taken advantage of income opportunities such as utility reimbursements. Underwriters were cash flow constrained, limiting proceeds needed for the acquisition.
Solution: GSP emphasized the Sponsor’s strong track record of acquiring and improving multifamily properties in this market. In discussions with capital providers, GSP provided supporting comparable data to demonstrate above market operating expenses and specific non-recurring expenses that would not be incurred on a go-forward basis. GSP identified a regional bank that agreed to underwrite to a 1.15 debt coverage ratio based on our Sponsors’ operating budget. The loan closed in 60 days with no change to the original terms.
