Apartment Owners Land $33M in Refinancings

[IMGCAP(2)]Both of the loans were GSE deals, and both were unusual in a number of respects. On the $5 million loan, the borrower still had the original HUD loan from 39 years ago, carrying a $50,000 balance, and Aryeh needed to negotiate with HUD so that the agency would drop its customary 150-day loan-payoff process. On the $27.8 million deal, the borrower had only three months of stabilized operating history on the properties rather than the full year that many lenders typically require.

Aryeh explains that HUD typically requires 150 days to process a loan payoff for a Section Eight affordable property like the Reseda complex because the federal agency has a number of concerns that it wants to address before authorizing the payoff―such as ensuring that the property remains affordable. But the borrower didn't have time to wait for 150 days because Aryeh had locked in the interest rate for 75 days and the loan needed to close within that time. "We had meetings with HUD until they dropped the 150-day requirement and we funded the loan," Aryeh says. "I was able to convince HUD to go forward with an earlier payoff date so that we were able to take advantage of the low rates that were available to us at the time."

With only a $50,000 balance on the original HUD loan, the borrower took $4.5 million cash out and plans to use the proceeds to acquire more investment real estate, Aryeh says. He notes that a letter of intent was issued within five business days and the rate was locked within 30 days of application.

The owner of the three complexes financed by the $27.8 million loan, which include one property in West Hollywood and two in West Los Angeles, also took cash out. "Most lenders were not willing to entertain loan proposals either because of the lack of rental history or the high rents," Aryeh says. He explains that the properties have only been stabilized since September and that rents average $3,800 for the units, most of which average about 1,600 square feet with three bedrooms and three baths.

However, the buildings are all in strong markets that have very low vacancies. Aryeh demonstrated to the lender that the high rents are justified because the units are all brand-new, built to luxury condo specs and with no comparable product nearby. Also, the operator, a former condo developer who has shifted to operating apartments, has managed apartment units for more than 30 years with a history of strong occupancy in addition to his condo development experience.