Rate: 4.50%
Term: 10 Years
Amortization: 25 Years
Loan Recast: Allowed Twice Annually
Prepayment: None Twice Annually
Recourse: Entity level only
Lender Fee: 0.50%

Transaction Description:
George Smith Partners placed the acquisition financing of a leased fee for a Southern California condominium complex, sized to 100% of the purchase price. Our Sponsors, the Home Owners Association (HOA) owned their individual units but were subject to a ground-lease with 35 years remaining. Through the HOA, the individual homeowners were afforded a one-time purchase option to acquire the fee position and collapse the ground-lease assuming 100% participation in the acquisition. Their alternative would be to wait 35 years and lose all of their improvements to the expiring lease. Their equity interests would have zero value at that time and diminish rapidly as that lease termination date neared. Fixed at 4.50% for ten years, the loan amortized over 25 years. There is no warm body to sign repayment or carve-out guarantees. All recourse is limited to the HOA entity.

Challenges:
HOAs are governed by their CC&Rs and are precluded from owning any real estate. GSP effectively did not have a borrower to take title/ownership of the fee position without 100% consent from the homeowners. Assuming an accelerated amortization, any special assessment would more than double current HOA dues. Some owners have ample equity in their unit or cash on hand to cover their proration of the purchase and would seek to opt out of new financing to avoid the special assessment. A future unit buyer may choose to opt-out of the loan and pre-pay their allocation two years or more from now and again opt out of the special assessment. The Lender’s monthly mortgage payment would need to be recalculated with every pre-payment as more unit owners opted out of the special assessment cash flow used to support the monthly loan payment. The ground-lease payment currently in place did not support a $10,000,000 or any level of debt near that sale price; ie. the HOA could not just assume the ground-lease and leave it in place for the remaining 35-year term.

Solutions:
GSP identified a Southern California portfolio lender with an HOA lending unit. They specialize in capital improvement loans to HOAs and structure a pledge of cash flow/special assessment dues as their collateral. They do not need a recorded Deed of Trust for collateral. The acquisition was for the purchase and immediate collapse of the ground-lease. Individual unit owners would have the lease-hold designation removed from their title reports. The relatively low interest rate on the loan coupled with a 25-year amortization schedule minimized the impact to the monthly dues assessment. Unit owners on a case-by-case basis were permitted to opt out with their prorated cash allocation. The loan allows for a partial prepayment two times each year without penalty. The loan will be reamortized at that time over the remaining amortization term to lower the monthly payment as more homeowners opt out of the special assessment payment to the HOA.

Advisors

Matthew Kirisits Director

Rate: 8.0%
Term: 1 Year
LTC: 90%
Amortization: Interest Only
Guaranty: Non-Recourse
Prepayment: None

Transaction Description:

George Smith Partners arranged cash-out financing for developers of a high-end luxury home in Beverly Hills to pull out trapped equity and prepare for a future construction loan. The long-term goal was to obtain highly leveraged, non-recourse construction financing that will utilize the equity from this transaction. The first step was to capitalize the Property. The Property had a $4,400,000 as-is value and a $19,000,000 as-completed value. GSP obtained a $4,000,000, 90% LTC that will provide the ownership with equity capital.

In today’s market, it is challenging to find capital providers willing to provide high leveraged, cash-out financing for land. Using our relationships, GSP was able to identify a non-recourse lender who would provide highly leveraged, cash-out financing to 90% LTC. By completing the first stage of financing the ownership will have the needed capital for a larger future construction loan.

Rate: 7.25%
Term: 3 Years
Amortization: Interest only
LTC: 80%, including future funding
Guaranty: Non Recourse
Lender Fee: 1% in / no exit fee
Prepayment Penalty: 12 month interest guarantee

George Smith Partners arranged $2,300,000 in non-recourse acquisition bridge financing for a value-add multifamily property in the South Los Angeles. The 20 unit, 1920’s vintage property had significant deferred maintenance and below market rents. The Sponsor’s business plan was to reposition the property, buyout tenants and release the units at market rents. The transaction carried a very short 30 day closing time frame.

Sized to 80% of total project cost, the loan includes future funding for tenant buyouts, a full gut renovation of unit interiors and an exterior upgrade. The three year bridge loan is interest only and carries a fixed interest rate of 7.25%. Interest is not charged on the hold-back until funds are drawn. The lender fee was limited to a 1% origination fee with no exit fee. The lender did not charge a legal fee and closed the transaction in 30 days from term sheet execution.