Units in Baldwin Hills, California

Our Client purchased the subject property last year and was seeking a return of their equity for the acquisition of additional units. George Smith Partners successfully placed the $2,100,000 non-recourse loan to 95% of the Borrowers’ total cost basis for the 24 Units in Baldwin Hills, California. The loan is fixed at 4.0% for 10 years. At the time of purchase, vacancy, collection delinquency, and deferred maintenance were extremely high. The Borrower invested an additional $200,000 into capital improvements, and transformed property management practices. Due to the Borrowers’ successful renovation, George Smith Partners was able to obtain new financing that totaled 95% of purchase and all upgrade costs prior to the one year anniversary. Challenge: A majority of lenders maintain strict seasoning requirements for cash out for transactions for properties that have undergone recent repositioning. Assets purchased within the prior 24 months are especially scrutinized regardless of any equity returns to the Borrower. Our Client was in escrow on an unrelated acquisition and required maximum proceeds from this refinance, yet was rate sensitive for long term non-recourse debt. Most lenders are constrained at 75% of cost. The property location and limited amount of stabilized collections added to our challenges. Solution: GSP identified a lender willing to offer a capitalization exception based on the strength of the Borrower and current status of the subject property in order to provide the Borrowers with cash-out to 95% of their total costs. GSP demonstrated that the Borrower purchased the asset at a below market price and therefore the new stabilized value should not be based on the original purchase price. The Lender offered a market rate, 10-year fixed rate non-recourse loan at 4.00%.