Massive Cash-Out Apartment Refinance – Mesa, AZ

• Capital Source: Fannie Mae
• Purpose of Loan: Cash-Out Refinance
• Loan Amount: $10,000,000
• LTV: 65%
• Rate: 3.21%
• Term: 10 Years
• Amortization: 2 Years IO, followed by 30 Years
• Prepayment: 9.75 Year Yield Maintenance
• Recourse: Non-Recourse

Transaction Details:
Tower Capital has successfully secured a $10 million Fannie Mae loan on a 113-unit multifamily property located in Mesa, Arizona. The non-recourse, 10-year, fixed rate loan was locked at 3.21% and offered two years of interest only payments. Despite most lenders pulling back drastically on cash-out refinance requests due to the COVID-19 pandemic, the loan provide the borrower with significant cash over and above his cost basis.

The garden-style property was built in 1986 and upgraded in 2007 & 2019. It has one-bedroom & two-bedroom units that average 576 & 1,006 square feet, respectively. The property features a pool, hot-tub, and leasing office with on-site management & maintenance.

Around the beginning of 2019, the owner began upgrading units as leases rolled. Units received new carpets, kitchen upgrades including wood-grain vinyl flooring, cabinets & countertops, and bathroom upgrades including new bathtubs and fixtures.

Challenges:
This loan was placed under application in mid-February, while markets were still calm. Shortly thereafter, massive gyrations were felt, and spreads had increased 100 basis points in a single day at one point. The borrower’s interest rate was anticipated to increase dramatically, and loan dollars reduced. Furthermore, stricter underwriting guidelines were put in place with 12 months of PITI and repair reserve holdbacks now being required. Despite the uncertainty, Tower Capital’s team stayed calm and pushed forward. Spreads eventually settled and they worked closely with the appraiser and underwriter to maximize the underwritten NOI, managing to obtain over $500k more than what was on the loan application and almost completely offsetting the new holdback requirements.