Transaction Overview
George Smith Partners arranged a $1,075,000 cash-out refinance, including a 65% return of equity, at a 3.70% fixed rate on a multifamily property located in West Hollywood, CA. The sponsor, a Los Angeles based owner-operator, purchased the property less than two years ago and turned approximately half the units in the intervening period. Despite the limited ownership and lease seasoning, the Sponsor sought maximum cash-out proceeds to capitalize on the value unlocked through unit turns and to make new acquisitions. The sponsor also sought a fixed rate permanent loan to hedge against rising interest rates and a flexible prepayment structure to allow for a subsequent near-term refinance or sale, as additional value is unlocked through unit turns. GSP sourced a lender familiar with the market and underscored the submarket, the property’s additional upside and sponsor’s track record, which ultimately allowed the lender to get comfortable with the large return of equity. Sized to 65% of appraised value with a 1.20 DCR, the loan provided for a net return of equity of $425,000 to the sponsor. The loan, which carries a 15 year term and amortizes over 30 years, is fixed at 3.7% for the first 5 years of the term and then resets and floats at 300 basis points over 1-Year Treasuries for the remaining 10 year term. Sponsor’s application rate lock of 3.7% shortly after the election last year was honored by the lender, even though rates have moved significantly in the interim. Although the loan provides the benefit of a fixed rate, it carries no prepayment penalty.
