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Sule Aygoren Carranza is managing editor of Real Estate Forum and editor of Multi Housing forum, from which this article is excerpted.

Bethesda, MDGreen Park Financial closed a refinance package worth more than $337.1 million for a portfolio of 55 properties located primarily in the West and Southwest. Nomura Securities International Inc. provided the funds, which were put together and underwritten by a Green Park team led by vice president Andrew Tapley. Scott Jansen of Black Diamond Capital originated the financing.

The borrower, a private investor, was a repeat customer for Green Park. The locally based company closed a $156-million loan last year for a portfolio of 59 Los Angeles-area properties ranging between 20 and 80 units, according to Tapley. “They then returned to us with an opportunity to refinance this much larger portfolio,” he says, noting that the existing relationship made it easier to put together the deal.

While Green Park treated the deal as 55 separate loans, the debt was divided into six pools that are cross collateralized and cross defaulted. Nomura will include these pools in its next CMBS offering. “In a securitization, the assets are classified into different tranches of risk based on their quality, the loan-to-value ratios, debt coverage and so on,” Tapley explains. “The less risky, better quality properties are put into one pool and the riskier properties would be put in a different pool. It’s just a way of spreading the risk across the spectrum.” The loans carry 10-year terms with 30-year amortization schedules. The entire pool was underwritten at a 69% loan-to-value with a 1.20 debt service coverage ratio and cap rates ranging from 5.5% to 7.5%.

Because six of the properties were not yet stabilized, the financing for those properties were structured with earn-outs wherein the properties were underwritten at a 1.00 DSC, with a holdback until they reach the 1.20 DSC threshold. “We underwrote the properties based on the most recent month of cash flow, and those six had dipped to below where they had been historically due to new vacancies or a change in management,” Tapley says. “So we gave the borrower loan proceeds right now based on how the properties were performing at a 1.20 DSC, and they have the ability to take out additional proceeds up to the 1.0 DSC based on today’s cash flow once those communities are performing at a 1.20 DSC. It’s just a way of allowing them to take out extra equity once the properties start performing better because all six of those deals, based on the appraisals we got, were at 50% loan-to-value ratios or less. It’s just a way for the borrower to take out additional equity on those deals in the future.”

The portfolio includes 53 garden-style apartment complexes totaling 5,611 units and two office buildings with an aggregate 40,766 sf. The two office properties and 44 of the communities are located in and around the Los Angeles MSA, four multifamily assets are in Las Vegas, three are in the Phoenix area and one property is in the Dallas metro area. The communities range in size from 18 to 496 units and have an average occupancy of 94% to 95%.

The quality and location of the assets in the portfolio made the transaction a win for Green Park. “Southern California, especially Los Angeles, is one of the best, if not the best, market for multifamily in the country right now. All but six of the 55 properties have had high occupancies and great cash flow for the past several years, and we expect that to continue,” says Tapley. While most of the communities are in the class B to C-minus range, “There were a couple of lower-quality properties in the Los Angeles market that we probably wouldn’t have securitized if they were one-off deals, but because all properties in the portfolio were cross-collateralized and cross-defaulted, we were able to securitize all of them.”

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