Multifamily Acquisition Financing

• Capital Source: Bank
• Purpose of Loan: Acquisition
• Loan Amount: $12,350,000
• LTV: 65%
• Rate: 5.5%
• Term: 10 Years
• Amortization: 30 Years
• Prepayment: Stepdown

Transaction Details:

Tower Capital recently arranged a $12,350,000 acquisition loan for a 200-unit, garden-style, townhome & apartment community located in Oklahoma City, Oklahoma.  Built in 1975 and partially renovated by the previous ownership, the property features a clubhouse, laundry facilities, and on-site property management. The unit mix consists of 10.5% studios (21), 10.5% 1-beds (21), 48% 2-beds (96), 26% 3-beds (52) and 5% 4-beds (10). At the time of acquisition, 73 out of the 200 units have been fully renovated and the borrower plans to continue with renovations and raise rents. Additionally, the borrower received a significant credit to be applied towards the rehab of two down units due to fire damage so there is significant upside at this project.

Structure:

The financing was arranged through a community bank that offered Tower’s client, an experienced California-based investment group, a 10-year loan that is fixed for the first 5 years at 5.5% with an attractive stepdown prepayment and 30-year amortization schedule.

Challenge:

Although the property appraised for the purchase price, the appraiser utilized higher expenses than what the borrower had used in their proforma and the lender used in their underwriting. The appraiser initially placed more emphasis on the project’s historical expenses, however, the seller was a non-profit who was not incentive to run a lean operation so consequently, the property’s expenses ran higher than normal. Furthermore, with a self-managed portfolio of over 6,500 multifamily units, the borrower has economies of scale to reduce expenses. Tower was ultimately able to support lower underwritten expenses but providing the appraiser and lender with an analysis of several other properties that the borrower owned which corroborated their assumptions.