Summary: Continental Partners arranged the $6,680,000 acquisition debt financing for a 38- unit deal in San Leandro, CA. The Sponsor performed a market survey and anticipated unit renovations would increase the NOI and overall value of the Project. The bridge financing was sized to 80% of the total capitalization consisting of the $7,200,000 purchase price and $1,140,000 of capital upgrades. The loan was priced at 30-day LIBOR + 350 with a floor of 4% and did not have any prepayment penalty.
Opportunity: The Sponsor, an experienced value-add real estate investment group, had identified an underperforming multifamily asset for sale. Although the property was 100% occupied, it was underperforming with rents significantly below market. Given the upside in rents, the property was purchased with a very low going-in cap rate of 3.65%. Most of the Lenders in the market were not comfortable providing such a high leverage loan up to 80% of total cost given the negative DSCR at the time of loan closing.
Result: Continental Partners completed an in-depth market survey to confirm the market rent comps and justified the take-out loan. Continental Partners placed the Loan with a Lender that provided a bridge loan facility to acquire the Property, structured an interest reserve to cover the debt service shortfall and allowed approximately $1,140,000 for future advances for building and unit renovations; with the commitment based on the prospective stabilized value. Based on a detailed understanding of the Sponsor’s business plan and market research, the Lender was comfortable committing to a larger loan amount than initially requested, which allowed the Sponsor to redirect their surplus equity into other projects they were pursuing. In addition, the Lender worked with the Sponsor in providing a flexible springing recourse structure, allowing the Sponsor to better appropriate their contingent liabilities across the rest of their real estate portfolio.