February 3, 2020– Continental Partners, a leading national mortgage banking firm that provides Market-Smart capital and financial services to real estate owners and developers nationwide, has successfully secured over $40 million in financing regarding four Los Angeles County assets: a 52-unit multifamily development in the Koreatown neighborhood of Central Los Angeles, a mixed-use multifamily and retail property in Santa Monica, California, a 26-unit multifamily development in Valley Village, California, and an additional Koreatown multifamily development consisting of 21 units.
The financing was arranged by J.M. Grimaldi, Executive Vice President at Continental Partners, and Brian Asheghian, Director at Continental Partners.
“Demand for rental units throughout greater Los Angeles remains at record highs, with vacancies consistently posting well under 4% throughout the metropolitan area,” says Grimaldi, pointing to a recent report from Marcus & Millichap. “That said, the market is also experiencing an incoming wave of construction deliveries. For these clients, we were able to successfully demonstrate the values of their assets and strategies to lenders amidst this influx of new product to secure competitive financing terms.”
The financing transactions include:
Construction Loan for 52-Unit Multifamily Development in Koreatown
Continental Partners secured a $12.62 million construction loan for a 52-unit multifamily asset in the Central Los Angeles submarket of Koreatown. The sponsor purchased the site three years ago and was seeking a construction lender who would value the land based on the current market and maximize leverage at the lowest rate, with the option of a mini-perm loan once the asset reached stabilization, notes J.M. Grimaldi, Executive Vice President at Continental Partners.
“In addition to the debt on this land, the sponsor was underway on several other development projects,” says Grimaldi. “Due to our experience and deep understanding of the sponsor’s needs, our team was able to mitigate potential lender concerns regarding this debt and contingent liabilities through effectively communicating the strategy. Ultimately, we were able to secure a lender that specializes in multifamily construction debt and understood the true value of the land.”
According to Grimaldi, Continental Partners completed a thorough review of the sponsor’s outstanding debt and liquidity position and encouraged the lender to fund 72.5% of the construction loan upfront, instead of the originally proposed 70%, in addition to structuring a 2.50% holdback once the sponsor’s liquidity position changes.
The construction to permanent 10-year fixed loan is interest only through construction with a 30-year amortization schedule thereafter. The full recourse loan is sized to 75% of total project cost and is priced at 4.10%.
Refinancing for Multifamily and Retail Property in Santa Monica
Continental Partners successfully secured $11 million in refinancing for a newly constructed mixed-use asset featuring 26 multifamily units and retail space in Santa Monica, California.
The sponsor had a construction loan that was nearing maturity and was seeking to refinance, requesting a 7-year fixed, non-recourse loan with five years of interest only payments, according to Brian Asheghian, Director at Continental Partners.
“Although the asset had received the certificate of occupancy, the retail space was vacant and was not anticipated to be leased by the time the construction loan matured,” explains Asheghian. “After strategically exploring several options, we were able to source a lender specializing in multifamily to fulfill the sponsor’s requests.”
The Continental Partners team convinced the lender to fund the transaction just as the multifamily space was fully leased up. The firm further negotiated escrow provisions which allowed the borrower to fund the loan at pre-stabilization through a holdback, notes Asheghian.
“As a result, we were able to complete the funding of the transaction on time while avoiding unnecessary extension fees for the borrower,” continues Asheghian.
The 7-year fixed loan has a 30-year amortization schedule after the interest only period. The non-recourse loan is sized to 55% of value and is priced at 3.8%.
Construction Loan for 26-Unit Development in Valley Village
Continental Partners recently arranged a $9.04 million construction loan for a 26-unit multifamily asset in the Los Angeles submarket of Valley Village.
“Our ability to identify several more attractive financing options than our competitors, as well as close this construction loan in the fourth quarter, speaks to our strong, long-term relationships,” says J.M. Grimaldi, Executive Vice President at Continental Partners. “We were able to structure an all-in debt package with a fixed construction period that rolled into permanent financing, without the need to go back to market once construction is complete.”
Grimaldi notes that this was the borrower’s first development, a major concern for a majority of construction lenders. To overcome this, Continental Partners advised the borrower to source a general contractor on the lender’s approved list, as well as accommodate the lender’s liquidity needs by refinancing other properties prior to closing.
The 7-year fixed loan sized to 70% of total project cost and is priced at 3.85%.
Permanent Loan for 21-Unit Multifamily Development in Koreatown
Continental Partners successfully secured $7.34 million in financing for a newly constructed 21-unit multifamily asset in the Central Los Angeles submarket of Koreatown.
The permanent loan was structured as a recourse burn-off, resulting in conversion to a non-recourse loan after 12 months of operating history at a 1.20 debt coverage ratio, according to Brian Asheghian, Director at Continental Partners.
“It was extremely important for our team to get the lender comfortable with only having the managing member sign on behalf of all partners of the asset,” says Asheghian, noting that the sponsor’s parents were both 25% owners of the property.
Continental Partners funded the loan at 95% occupancy. The 5-year fixed loan is priced at 3.7% with a stepdown prepayment penalty of 3, 2, 1.