LOS ANGELES, Calif. – January 07, 2014 – (RealEstateRama) – Commercial real estate investment banking firm George Smith Partners has successfully arranged a $36 million bridge-to-perm loan for client Far West Management for the renovation of its property, Villa Del Mar Apartment Homes, a Marina Del Rey-waterfront, 196-unit, four-building multifamily complex with 209 boat slips, located on a leasehold, according to George Smith Principal and Managing Director Steve Bram and Senior Vice President David Pascale.
The unique, non-recourse, $36 million bridge-to-perm loan will provide 100 percent of the project’s renovation costs, reserves, financing costs and all soft costs for the renovation of the 40-plus-year old property. This renovation was required as part of the ground lease extension with the County of Los Angeles.
“Far West Management was seeking a loan that would allow the company to renovate the Villa Del Mar property, while also minimizing refinancing risk for their investors at the completion of the renovation process,” explained Bram.
He continues, “We ultimately secured a financing structure that provided our client with a 24-month bridge loan, which, upon completion of the property renovation and stabilization, will automatically convert to an eight-year permanent fixed-rate loan.”
According to Bram, the lender locked the rate on both the two-year bridge loan and the permanent loan at signing of the application.
“By locking in the interest rate of the bridge and permanent loan at signing, our client was able to minimize the risk for its private investors by ensuring that a potential rise in interest rates will not affect their returns or risk of refinancing,” Bram said.
Bram noted that the financing also includes multiple loan fundings during the renovation process to minimalize the interest cost of unfunded renovation monies. The loan allows Far West to vacate and renovate the buildings one at a time. Once a building is complete, Far West Management will lease that building at new premium rents, and subsequently take the next building off-line for its renovation. This process will allow the client to continue to generate cash flow from existing rents throughout the renovation.
“The financing we secured will allow Far West Management to upgrade the property,” Bram explained. “Once fully renovated, the Villa Del Mar Apartment Homes will be uniquely positioned within the Marina Del Ray submarket, enabling the owner to charge premium rents based on the asset’s above-average unit sizes, stellar location and vast amenities.” The units are larger than other newly constructed apartment communities in the area, ranging from 975-1,870 square feet.
According to Bram, the construction will include a complete gut renovation of the interiors of each apartment unit, including completely new plumbing and electrical systems, kitchens and bathrooms as well as flooring and windows. The building exteriors will be updated with a new exterior building skin. All public areas will be completely renovated as well, including the pool area, spa/sauna, clubhouse, rental office, tennis courts and basketball courts. In addition, the hardscape access, bathrooms and laundry facilities for the boat docks will be completely upgraded or replaced.
According to Bram, this was the first time this lender had done this type of loan structure, and created a flexible program that met the client’s requirements. The ground lease extension also required large upfront payments and a binding commitment from Far West to complete the renovation for the extension to be finalized. Finally, the lender needed to get comfortable with the special soil characteristics of Marina Del Rey relating to earthquakes.
The $36.115 million perm-to-bridge non-recourse loan closed at a rate of 5.0 percent for a total of 10 years, at two years interest-only followed by a 25-year amortization. The renovation and soft costs are funded as needed in three draws over 18 months with no negative arbitrage, at the 5.0 percent fixed rate. In 24 months, when the renovation is complete and the asset stabilized, the loan will convert to an eight- year fixed rate loan at a 5.0 percent rate, which was locked at signing.
About George Smith Partners
Founded in 1992, George Smith Partners is a leading national real estate investment banking firm that specializes in arranging financing for commercial and multifamily properties, including acquisition, construction, bridge and permanent loans, as well as mezzanine loans, highly leveraged participating loans and joint venture equity. The company has arranged more than $35 billion in financing since its inception. Additional information about George Smith Partners is available at www.GSPartners.com.
Corynne Randel/ Jenn Quader
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