Don't Miss a Fact,
Sign Up for FINfacts!

FINfacts is a weekly newsletter highlighting recent financings and economic insights.

Subscribe Here

Los Angeles Construction Loans: Highly Leveraged $12,770,000 Ground Up Koreatown Condo Construction Financing

Los Angeles Construction Loans

Rate: 10.25% Interest Only
Term: 24 Month Construction Loan
LTC: 85%
Guarantee: Non-recourse

Transaction Description: GSP arranged ground-up construction financing for a 29-unit for-sale condominium development in the Koreatown sub-market of Los Angeles. The client was a local general contractor who partnered with an owner who contributed the land. The goal was to obtain highly leveraged, non-recourse construction financing and provide no additional equity. The Sponsor tried to access bank financing on their own before coming to GSP.

Challenge: Non-recourse construction financing is very difficult, especially for first time developers. Lenders view ground-up condo construction as one of the most risky types of financing. In addition, the Koreatown market has seen lots of multifamily developments, but there has been little recent condo construction in this market since the last real estate cycle. Also, the insurance and other last minute expenses increased the overall project cost by $500,000.

Solution: Using it relationships, GSP was able to identify a non-recourse construction lender who would provide highly leveraged construction financing. Because the ownership did not want to bring in new capital, it was also critical for the project to be correctly underwritten and achieve certain loan to cost and loan to value targets. When it was discovered that additional insurance would be needed to protect the contractor and the long-term welfare of the project, the lender agreed to increase the loan by $500,000 a few days before closing to provide capital for unexpected costs. This allowed us to close the loan and start construction.

 

Advisors

Related Financings

  • $46,800,000 Construction Financing for the Development of a 247-Unit Build-to-Rent Community; Foley, AL

    November 21, 2022

    Transaction Description:

    George Smith Partners is pleased to announce the successful arrangement of a $46,800,000 construction loan for the development of a 247-unit build-to-rent community in Foley, Alabama. Through GSP’s strong relationship with the bank, GSP was able to successfully negotiate a 65% LTC, Non-recourse loan to fund parri-passu with the JV’s equity at WSJ Prime + 1.25% through construction. Pricing reduces and leverage increases to 70% LTC upon preset leasing hurdles.

    Rate: Prime + 1.25%
    LTC: 65%
    Guaranty: Non-Recourse

  • $13,990,000 Construction Revolver Financing for 23 For-Sale, Detached Single Family Residences; Prescott, AZ

    November 9, 2022

    Transaction Description:

    George Smith Partners successfully arranged $13,990,000 in acquisition and construction revolver financing for a 23-lot, for-sale, detached single-family residential community in Prescott, AZ. The Project is located in a gated community within the 1,100-acre Prescott Lakes master-planned community. The City of Prescott, known for its seasonal climate, quality of life, and low property taxes has experienced tremendous population growth. The Sponsor, a repeat client, recognized the opportunity to develop much-needed housing for the area. Despite the increasingly challenging market, GSP leveraged its expertise and relationships to identify a construction lender that had a deep understanding of the submarket, understood the projected sales prices (appraisal requirement waived), and recognized the Sponsor’s ability to execute on their plan. GSP was able to negotiate a high-leverage, fixed-rate loan and worked efficiently with the Lender throughout the one-month closing process.

    Rate: 9.25% Fixed
    Term: 18 Months, with Two 3-Month Extension Options
    Amortization: Interest Only
    LTC: 82% (combined on land & construction)
    Guaranty: Non-Recourse, with Completion Guaranty
    Prepayment: 9 Months Minimum Interest

  • $57,900,000 Participating Construction Financing for 187-Unit Multifamily; Tempe, AZ

    September 8, 2022

    Transaction Description:

    George Smith Partners successfully arranged $57,900,000 in non-recourse, construction financing for a mid-rise, Class A, 187-unit multifamily development in Tempe, AZ. The Project will serve the rapidly developing area of north Tempe. The Property is located immediately adjacent to a Valley Metro light rail stop, offering residents convenient access to Downtown Tempe, Arizona State University, Sky Harbor Airport, and downtown Phoenix.

    The Sponsor, headquartered in nearby Scottsdale with a successful track record of multifamily and commercial developments, engaged GSP in 2020 to source high-leverage, non-recourse financing. Despite being relatively early in the Project’s development stage, GSP sourced a Lender offering a 90% LTC loan, which includes a participating feature. This unique structure features the Lender sharing profits with the Sponsor in exchange for the high leverage financing.

    The construction budget grew significantly during the longer than expected entitlement and permitting process. Fortunately, thanks to GSP’s close relationship with the Lender, a commensurate increase in market rents, and the strength of the Sponsor, the final loan amount was nearly 40% higher than that of the original loan application in 2021.

    Rate: 4.25% Fixed
    Term: 5 Years
    Amortization: Interest Only
    LTC: 90%
    Guaranty: Non-Recourse

  • $9,000,000 Construction Financing for 28-Unit Apartment Building; Los Angeles, CA

    August 17, 2022

    Transaction Description:

    George Smith Partners secured $9,000,000 of senior construction financing for the development of a 28-unit ground-up multifamily Building in Los Angeles, California. The Project will be a conventional 28-unit property with 4 stories, including 12 one-bedroom units and 16 two-bedroom units. The construction loan floats at a rate of Prime + 1%. The 75% loan-to-cost construction loan also comes with the option to convert to a 5-year mini-perm loan upon completion; based on the 5-Year Treasury plus a margin of 2.75%, with a 3.95% floor, eliminating any future financial risks. GSP sourced a Lender that was able to move efficiently and most importantly accommodate the Borrower’s development timeline and experience. 

    Rate: Prime +1%, with a Floor Rate of 5.00%
    Term: 18 Months with Two 6-Month Options to Extend
    LTC: 75%
    Stabilized LTV: 65%
    Guaranty: Recourse
    Mini-perm Option: 5-Year Treasury + 2.75% with a 3.95% Floor

  • $21,600,000 Construction Financing and $10,700,000 JV Equity for 142-Unit BTR Community; Savannah, GA

    July 13, 2022

    Transaction Description:

    George Smith Partners successfully advised on $21,600,000 in construction financing and $10,700,000 in JV Equity for the development of a 142-unit built-to-rent community in Savannah, GA. The Project features 142 detached single-family homes on a 66.15-acre site. The homes will feature three to four bedrooms with an average square footage of 1,500 across four distinct home styles.

    GSP worked through several strategies with the Sponsor to source the 65% LTC, non-recourse construction debt financing, and a 90% joint-venture equity partner for the ground-up, build-to-rent community. With our marketing efforts highlighting the strength of the Savannah rental market, this project received interest from several groups for both debt and equity.

    The Sponsor projects vertical development to be completed by the end of this year and lease-up to be finalized by Q1 2025.

    Rate: WSJ Prime + 50 with a 4.00% Floor
    Term: 3 Years
    Amortization: Interest Only
    LTC: 65%
    Fee: 1.00%
    Guaranty: Non-Recourse

  • $23,000,000 Construction Financing and $9,800,000 Equity Placement for 108-Unit Build-to-Rent Community; Charlotte, NC

    June 22, 2022

    Transaction Description:

    George Smith Partners successfully advised on $23,000,000 in construction financing and $9,800,000 in JV Equity for the development of a 108-unit built-to-rent community in Charlotte, NC. The Project features 108 attached single-family homes situated atop a 13.5-acre site. The Site is located just seven miles outside of downtown Charlotte and less than 2 miles from UNC Charlotte. The houses have private entrances, individual backyards and feature shared amenities including a pool, jacuzzi, clubhouse, fitness facility, grilling area, pet park, and game room.

    GSP worked through several strategies with the Sponsor to source the non-recourse financing terms and joint-venture equity partner for the ground-up built-to-rent community. The Sponsor chose a joint-venture partner that GSP had introduced to the sponsors on a previous deal. GSP sourced several highly reliable lender options, and the Sponsor ultimately went with a lender headquartered in Charlotte that provided strong terms and would keep the loan on their balance sheet.

    The Sponsor projects vertical development to be completed by late 2023 and lease-up to be finalized by Q2 2024.

    Rate: SOFR + 5.50%
    Term: 3 Years
    LTC: 70%
    Fee: 1.25%
    Guaranty: Non-Recourse