Innovative Loan Seeds $23M Multifamily Plan

DALLAS-Joe Foster Co.'s capital markets team, introducing an innovative loan to the market, has rallied $17.9 million on a "taxable low-floater" for a $23-million multifamily project. The financing is similar to traditional construction vehicles--minus the prepayable penalty.

"The cost for borrowers is much cheaper. It's a very different way of financing," says J. Mikel Reynolds, principal and executive vice president for the locally based Joe Foster. He tells GlobeSt.com that the special funding has opened the door for Sage Development Co. of Houston to develop a 296-unit, market-rate complex in South Dallas.

Sage will break ground in two months on its second merchant build at Pinnacle Park. The 18-building Pinnacle Ridge Apartments will sit on a 14.8-acre hilltop site with close-in and horizon views of the Dallas CBD, Dallas/Fort Worth International Airport and Las Colinas. "That property will almost become an architectural icon there," Reynolds says. "It's a spectacular site."

Sage's newest project will have 124 one-bedroom units, 156 two-bedroom apartments and 16 three-bedroom designs. Units will average 819 sf; the average rent is projected at 98 cents per sf or $805 per month.

Houston architect Ted Trout & Associates Ltd. designed Pinnacle Ridge, a mirror project of its 240-unit Vistas at Vance Jackson at 12346 Vance Jackson in San Antonio. In South Dallas, Sage's other handiwork is the 332-unit Vistas at Pinnacle Park, built 12 years ago at 4599 W. Davis St.

Reynolds says the capital markets group, which includes principal Richard Lapp and senior vice president Ralph Daruns, has numerous deals in the pipeline for "taxable low-floater" financings. "This is more prevalent in the Southeast," Reynolds says. "You don't see much of this in Texas."

According to Reynolds, the financing saves 150 to 200 basis points in interest in comparison to the normal cost of construction capital. Commerce National Bank of Bryan, TX underwrote the financing with a letter of credit that was sold in one-week demand notes by Merchant Capital Bank of Montgomery, AL, a remarketing agent with more than $2.7 billion of variable-rate securities.

Reynolds explains the letter acts as collateral, with the bank holding a lien over the property. In Sage's case, he says the 80% loan-to-value financing came with interest-only payments, a three-year term and a floating rate that kicked in at 5.67%. The float, he adds, is close to the 30-day Libor. The capital markets team also drummed up Sage's equity from a private source.

"Merchant Bank came to us," Reynolds says, adding that it's looking to build business in Texas. The financing is open to all commercial product types.

"It has the same liability to a developer as a normal loan," Reynolds stresses. The bond rates change every week, but there's no prepayable penalty and it's flexible. "You can swap it. You can cap it. You can buy a floor," he says. "If you wanted to fix your rate, you could do it." In fact, he adds, that's just what Sage did on the closing day, opting to swap to a three-year, fixed-rate, interest-only loan from Merchant Capital Bank.