Continental Partners, a commercial real estate investment banking firm, has successfully arranged a $34 million loan regarding a newly constructed 144-unit multifamily asset in the North Hollywood submarket of Los Angeles, California.
The loan serves to refinance the existing construction loan on the property, according to Brian Asheghian, Director at Continental Partners, who secured the financing.
“The Sponsor had a construction loan for the development that was nearing maturity and came to us seeking to lock in a low interest rate with a long-term, fixed, non-recourse loan that included a cash out component,” explains Asheghian. “While the Sponsor had a strong asset, a challenge was that some lenders were being conservative based on the large number of units recently completed or under construction the submarket, and were offering limited cash out components due to loan-to-cost restrictions. Further, the property was still in the early stages of lease up at about 30 percent and many lenders were only interested in funding a fully stabilized property with the certificate of occupancy in place.”
Continental Partners approached a wide variety of lenders and was able to identify a life insurance company specializing in multifamily who was willing to take on the lease up risk without requiring any recourse, as well as fund the loan with a temporary certificate of occupancy, notes Asheghian.
“By demonstrating the demand for this product in the submarket, we sourced a lender who understood the value of the asset,” says Asheghian, who notes that despite the influx of new construction, North Hollywood actually saw a decline in multifamily vacancy rates this year, unlike most surrounding submarkets. “Additionally, based on previous multifamily experience and expertise, the lender understood the difficulty of dealing with the building department and only required the temporary certificate of occupancy to close.”
Continental Partners also worked with the lender to structure escrow provisions that allowed the borrower to fund the loan at pre-stabilization through a holdback and release the remaining proceeds at stabilization.
“Ultimately, the asset reached stabilization and the transaction was funded within eight weeks,” Asheghian adds.
The 20-year, fixed-rate loan is priced at a rate of 3.57 percent has a 30-year amortization and a loan-to-cost of 85 percent. The loan has a yield maintenance with five years of stepdown and no lender fee.