Bridge Loans Totaling $8M Refinance 197 Units

MIDLAND, TX-A potentially frustrating delay in obtaining HUD financing ended with a sigh of relief as an Austin-based multifamily property owner obtained two bridge loans totaling $8 million to refinance the 127-unit Summerhill Apartments and the 170-unit Southwest Oaks in nearby Odessa, TX. Both loans were cross-collateralized, on an interest-only schedule, have a 62.5% loan-to-value and carry a floating interest rate of 6.75% over LIBOR during its one-year term.

Refinancing was initially sought on the class C commercial real estate properties to comply with a divorce decree requiring removal of an ex-spouse from previous bank mortgage recourse obligations. According to Todd McNeill, senior director with Dallas-based Metropolitan Capital Advisors Ltd. who helped arranged the financing, the original plan was to apply for Fannie Mae loans through lender Arbor Realty Trust.

However, “Fannie Mae declined the transactions due to a concentration issue in the Midland-Odessa area,” McNeill tells Globest.com. “There was nothing wrong with the borrower, but Fannie Mae has a fair amount of loans in that area, and they decided they may not want to do any more there.”

The next step was to apply for a HUD loan, but “we had only a short window to comply with the divorce decree, so we asked the lender to give us a bridge loan while we made the application to HUD, which is about a 12-month process,” McNeill explains. He goes on to say that the borrower is in the application process now, and the permanent HUD loans are anticipated to close in February, 2013.

The financing currently in place on the two apartment complexes is what’s known as a bridge-to-HUD product, and McNeill says this product is becoming more common, especially among HUD lenders, though not all HUD lenders offer it. Given the process to obtain HUD financing can take up to a year, and given that many borrowers don’t have that amount of time, the bridge-to-HUD is a way to plug the time gap. “The exit from that bridge loan is HUD financing,” McNeill comments.

Summerhill Apartments was built in 1979 and is at 3001 N. Midland Dr., while Southwest Oaks, at 4651 Oakwood Dr. and 1465 John Ben Sheppard Pkwy, was built in two phases in 1973 and 1976. Both multifamily properties are more than 90% occupied.