Summary: Continental Partners arranged the $5,300,000 in debt bridge to mini-perm financing for a 7,500 square-foot value-add office building located in the financial district of downtown San Francisco. The Sponsor, a professional real estate investor specializing in value-add opportunities, had requested a competitive loan to finance the acquisition and renovation of an office building to be converted into multifamily micro-units.
Opportunity: Despite the rapidly growing demand for affordable multifamily units in this market, most lenders were having a difficult time reaching initial proceeds given the large rehabilitation aspect of this project and the micro-unit sizes. Continental Partners provided a number of quality rental comps to justify the rents that the property would achieve upon stabilization and delivered substantial evidence that once the business plan is executed, the Sponsor would easily be able to refinance the existing loan into a permanent loan product. The sponsor intends to invest nearly $2.2 million to perform a complete gut rehabilitation of the office building. Planned improvements include partitioning the space into multifamily micro-units, and completing modern finishes that will appeal to millennial renters in this market.
Result: Continental Partners successfully secured the $5.3 million loan from a regional bank to finance the total project cost of approximately $7.54 million. Based on a deep understanding of the Sponsor’s business plan and market research, the Lender was able to structure a $300,000 interest reserve to cover the debt service shortfall during the renovation period, with the commitment based on a $9 million stabilized value. The bridge loan was sized to 103 percent of the purchase price, with a loan-to-cost leverage ratio of 71 percent. Upon stabilization of the property, the Lender will drop the interest rate approximately 100 basis points and amortize the loan over 25 years for a period of four years after the initial 12-month term.