| Transactions of the Week |  | |  | | Transaction Description: | | $11,115,000 Joint Venture Acquisition and Construction Equity George Smith Partners arranged $11,115,000 in Joint Venture Equity to acquire a to-be-built 95 Unit multi-family development site in West Los Angeles. The client, a well-regarded Los Angeles based developer, was approached directly with an off-market opportunity in late 2011. The Developer had previously used internal funds to develop prior projects, but had engaged GSP to arrange institutional equity for this transit-oriented site. The Developer believed strongly in the site because of its excellent location. The parcel is situated three blocks from the LA Metro's Expo Line stop at Olympic and Bundy, slated to open within 12 months of project completion. |
Challenge: Despite being an off-market transaction, the project generated a tighter return on cost than most equity providers were looking to achieve on an un-trended basis. The project is located in very close proximity to the popular multifamily markets of Westwood, Brentwood and Santa Monica, but not in an area of recently constructed comparables. |
Solution: GSP identified an equity partner that was knowledgeable of the prime West Los Angeles market and adjusted their return-on-cost criteria accordingly. GSP sourced comparable older projects within the development's competitive set that demonstrated strong rental growth (6% in the last four months), and low vacancy (sub-5%). | | | | |  | | Transaction Description: | | Refinance of an Eight-Unit Inland Empire Multifamily Asset to 75% LTV Shahin Yazdi successfully placed the 75% LTV rate-and-term refinance of an eight-unit apartment building in Palm Springs, California. The Borrower presented significant credit issues, including mortgage defaults and limited verifiable income. Many capital providers are hesitant to lend in the Inland Empire due to housing market perceptions. The subject property's superior location within the market offered a consistently strong historical cash flow during the worst of the down-turn, allowing the lender to become comfortable with the location and the Borrower's credit issues. Documentation was provided during the due diligence process to demonstrate a sustainable increase to Borrower global cash-flow. | | | Rate: 4.0% | | Term: 5 Years | | Amort: 25 Years | | LTV: 75% | | Recourse | | Broker: Shahin Yazdi | | | |  | | | | Mezzanine Debt: Stabilized or Bridge/Reposition Assets Several capital providers are affording higher leveraged transactions with a tranche of internal Mezzanine Debt for stabilized assets as an offering to investors seeking higher levels of senior debt. This presents a win/win as the lenders are securing additional originations while subsequently adding to their over-all yield. One-stop-shopping for 85% leveraged transactions is offered by Wall Street as well as a small handful of Life Company funders. The higher yielding tranche is wrapped with the senior note for a negligible increase in the total coupon. Borrowers seeking higher debt levels on transactional assets are also witnessing a larger appetite for Mezz Debt and/or Pref Equity levels. Larger assets slated for reposition may obtain total leverage up to 90% with a mid-teens IRR on the most senior tranche. Mezz/Pref Equity allocations for turn-around assets should be at least $5,000,000 for terms of 2 to 7 years. Ground-up construction Mezz/Pref Equity requests are currently limited to pre-leased transactions. | | | | Hot Money | Small Loan Bridge Debt from $1,000,000. GSP has identified a regional bank funding asset reposition loans from $1,000,000 to $10,000,000. The program will fill a significant void for California commercial and multifamily assets, as this level of bridge debt is sorely under-capitalized. Non-recourse financing is available, although a repayment guarantee will be required for assets below break-even cash flow at funding. All major property types will be considered, including hospitality. Loan-To-Value can go up to 75% for multifamily and 65% for commercial, with hotels sized to 55%. Pricing ranges from Prime plus 100 to 200 basis points. A fixed rate mini-perm may be provided upon stabilization. | | | If you have an inquiry regarding George Smith Partners' commercial real estate financing, please contact your GSP representative or Todd August, Chief Operating Officer, at (310) 867-2995 or TAugust@GSPartners.com. | | | In The News | Managing Director David Rifkind was recently quoted in The Commercial Property Executive on Post-Recession Trends. The "Mixed Forecast" article reviewing commercial property types and loan processes appears on Page 25 and may be found here. | |
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