How Pre-Underwriting Helped Berkadia Finance a $1.4B Sale

LOS ANGELES—Last month Berkadia Commercial Mortgage helped Lone Star Real Estate Funding III secure $1.36 billion for a 56-asset multifamily portfolio in just 35 days.

How did it accomplish this feat? The company pre-underwrote the portfolio with both Fannie Mae and Freddie Mac when the properties went to market. That way, SVP Anthony Cinquini explained to GlobeSt.com, "when the buyers showed up they could get financing wherever and however they wanted."

This is not something GSEs will typically do, but an exception was made for this portfolio, both this time and the last time it traded, Cinquini says.

First though, some background about the deal.

The seller of the portfolio, which consists of 18,000 units in Arkansas, Ohio, Texas, Florida, Tennessee, North Carolina, Maryland and Washington, was a joint venture between DRA Advisors and Bell Partners. Lone Star was the eventual buyer, and financed the acquisition via a seven-year, variable-rate loan through Berkadia's Freddie Mac Program. The financing was structured as a cross collateralized and cross defaulted loan with three years of interest-only payments.

This was set up prior to Lone Star's entrance on the scene, along with a number of other possible structures the would-be borrower might prefer, Cinquini says.

The various scenarios weren't that hard to envision, he continues. "There are only a handful of entities that can write these kinds of checks." Between 10 and 15 buyers expressed interest in the deal with seven to eight companies taking it to the next level.

"The debt side was basically done and ready for whoever the borrower would be. They would come to me they would say 'I want this leverage and term and structure' and I would say 'yep, we can do that,' because we had spent the time and energy to preunderwrite."

It was the seller that tapped Berkadia with the goal of pre-underwriting the portfolio, he adds.

When UDR sold the portfolio to the seller six-and-half years ago it was also underwritten before the fact, Cinquini says, who worked on that transaction as well but at a different company.