| Transactions of the Week |  | |  | | Transaction Description: | | $52,000,000 Inland Empire Multifamily Construction Financing to 71.8% of Cost George Smith Partners placed the construction debt [$35,000,000] and mezzanine financing [$17,000,000] for the ground-up development of a Class A apartment community in Wildomar, California. The project encompasses 312 units spread over 18 buildings, and recreational center that includes two resort-style pools. The land is fully-entitled, permitted and shovel-ready for development. The property is adjacent to a major anchored neighborhood shopping center, enjoying closer proximity to employment centers in Riverside and Ontario than competing residential communities in the corridor. |
Challenge: The sponsorship, which had owned this parcel since 2008, had been unable to secure construction financing due to the economic downturn. Lenders in this particular sub-market had taken a significant hit and have been very slow to re-invest. The sponsor was limited by its Joint Venture Partner to only incur a 'set' investment amount, and as such needed at least $52M of proceeds to move the project forward. The Sponsor required financing guaranteed solely at the entity-level, providing protection to the Sponsor's principals. |
Solution: GSP conducted extensive market research and analysis and proved out the market's viability for new multifamily development. Our economic research characterized Wildomar as an extremely strong rental market due to a shift in the demand drivers from "For Sale" housing to rentals. Once we ascertained the viability of the absorption, rental rates and costs; we identified sources that are familiar with this sub-market. Initially, leverage deemed a singular capital provider as unlikely for the loan-to-cost required. GSP dual tracked a structured loan that offered appropriate senior leverage with a mezzanine component to bring the leverage to the requested amount. Due to the low interest rate environment, the blended cost of capital is 7.14%, comparatively low for this level of total capitalization. GSP negotiated the entity-level guaranty by emphasizing the Sponsorship's extensive track record and substantial liquidity to assure the guarantee is limited exclusively to the business assets of the guaranteeing entity. | | | Rate: Senior: LIBOR+2.75% (7.14% Blended Cost of Capital with Senior & Mezz) | | Term: 3 Years + 1 Year Extension | | Amort: Interest Only | | LTC: 48.5% Senior, 23.3% Mezz: 71.8% Total LTC | | Recourse: Limited to the Borrowing Entity & Individuals' Business Assets. Brokers: Malcolm Davies, Michelle Lee | | | |  | | Transaction Description: | | $4,000,000 Permanent Recapitalization Financing For 76,175 SF Single-Tenant Indiana Office Building George Smith Partners arranged cash-out permanent financing for a fully occupied single-tenant office building in a tertiary market of Indiana. The cash-out is a partial recapitalization of a recently acquired property on an all-cash basis. The asset is leased to a "For-Profit" college with 3.5 years remaining on the initial lease term before options. The institutional quality of the borrower and the tenants' long-term historical occupancy at this location proved instrumental to securing the loan. GSP obtained two key loan provisions that will serve the borrowers' interest in both up-side and down-side scenarios – a loan term in excess of the lease term, and the ability to pre-pay without penalty. The borrower required full proceeds up-front without holdbacks. GSP structured a Letter of Credit that burns off upon lease extension/renewal. This debt structure mitigates borrower risks while providing for a 25% cash on cash return. | | | Rate: 5.375% | | Term: 5 Years | | Amort: 25 Years | | LTV: 75% | | Prepayment: None | | Non-recourse | | Credit Enhancement: Letter of Credit Brokers: Steven Orchard, Loren Bedolla | | | |  | | | | B Paper Abounds…. Numerous funds are sitting on pools available for deployment at terms and yields regulated to Hard Money lenders. To broaden their marketing net, originators have softened their rates and fees for higher quality assets. Assets not quite ready for institutional funding, yet are "near bank" quality, qualify for "Soft Money" terms. Rates range from 7% to 9% with fees capped at 2 points. Funding is nationwide and typically on a non-recourse basis with LTVs as high as 70%. Debt Coverage should be at least break-even at close or have executed pre-leasing in place to mitigate cash flow shortage. Loans to $10,000,000 typically fund in 30 to 45 days. | | | | Hot Money | Southwest Regional Bank – Senior Housing Ground-Up Construction to 70% of Cost GSP is working with a regional bank financing ground-up construction requests for Skilled Nursing, Assisted Living and Memory Care facilities in California and Arizona. Transactions will range from $2,000,000 to $10,000,000 priced in the mid-5% range. Loans typically roll into a 5 year mini-perm upon certificate of occupancy. Non-recourse may be structured upon stabilization hurtles being reached. Other asset types (office, industrial, retail) will be considered with pre-leasing. | | | 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 Press | Senior Vice President Steven Orchard was recently interviewed for the July publication of Western Real Estate Business On-Line. Mr. Orchard was polled for his perspective on Healthcare Financing. The entire article and other commentary are linked here. | |
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