$131M Trailblazing Deal Funds Buying Spree

DALLAS-Locally based Westdale Asset Management has closed out a $130.6-million forward-financing, embedded with quarterly draw-downs. The capital will go toward the acquisition of nine multifamily properties in three states from a Mid-Atlantic-based REIT. A small surplus funded a one-off acquisition of a state-leased office building in Kansas.

"We created an acquisition facility with a Wall Street lender that was able to lock up all their money a year ago, with staged quarterly funding," Stuart Wernick, president of Dallas-based Quantum First Capital, tells GlobeSt.com. The forward-financing was pulled together specifically for the portfolio purchase of 2,707 apartments in seven properties in Dallas/Fort Worth and one each in North Carolina and Georgia. The one-off is an 83,967-sf office building at 503 S. Kansas Ave. in Topeka, bought from a private investor who had seven years left on the lease.

Wernick says the 10-year loan has five years of interest-only payments and then rolls to a 30-year amortization. He says the interest rate was locked at mid-5% at the origination. None of the assets are cross-collateralized nor is there a reserve or renovation pool.

Wernick says Westdale's forward-financing was a trailblazer for his firm and perhaps in the industry. "A handful of others are doing this now," he says. "The key is the sponsorship and the ability to show they can buy the assets." He says Westdale's acquisitions team was about to go under contract for the portfolio, but wanted to first quantify the interest rate because the REIT required the closings to be staged over a one-year period.

The dealmaking details have been kept under wraps until the buying spree was complete. Wernick says the locked-in interest rate resulted in a 70 basis point savings from the origination to the last round of closings, which took place in recent weeks. "It made Westdale a better buyer than the marketplace," he says.

The hurdle to overcome, though, was bundling the targeted assets for the quarterly closings. "We had to make sure the right properties were performing each quarter," Wernick says. Westdale had the flexibility to substitute a property on the closing docket if it wasn't up to par economically when it was time for the exchange. The multifamily properties, all mid-1980s vintage, had occupancies averaging north of 90% at closing time, "These are stabilized assets that the REIT wanted to turn," he says, "all solid class Bs."

Wernick says the clear advantages are the locked-in rate and ready-to-go capital. "You can arrange a forward-financing today to lock up $50 million to $100 million and then go out and look for assets," he explains. "You have better buying power."