Complex $76M-Plus Loans Back Portfolio Buy

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DALLAS-Westdale Asset Management Inc. is putting a value-add repositioning plan for a 2,067-unit multifamily portfolio into action with $76.4 million in 14 loans from two lenders. The simultaneously closed transactions are embedded with flexibility for easy prepayment on the resale front.

Stuart Wernick, president of Dallas-based Quantum First Capital LP, and director Eli Gershenson arranged the loans through New York City powerhouses Lehman Brothers and Citibank. “It was not just a simple financing,” Wernick tells GlobeSt.com. “We were able to maximize loan proceeds by using two lenders. But at the end of the day, it also helped the borrower because we were able to achieve additional proceeds to help them with their goal.”

Westdale’s financing took 45 days to package once it swung into motion, but the plan to acquire the Lakeways portfolio from Denver-based Simpson Housing LP took at least one year to bring to fruition. Wernick says the challenge was to bundle the properties for short- and long-term holds. He adds the buyer and seller also were arm-wrestling with the state transportation department over a condemnation for a strip of freeway-fronting land at the Highlands at Galloway at 4819 N. Galloway Rd., the only Mesquite asset in the 10-property lot.

Wernick says the more routine leg of the financing was five loans, totaling $54.9 million, with Lehman Brothers. The 10-year loan is interest-only at a fixed rate of roughly 5.5%. The five properties included Highlands, which will lose part of its land so Interstate 635 can be widened. “Based on the occupancy of the properties, rental rates and values, we were able to work around that issue,” he says.

Wernick says the other five properties, though, required more work to package. When the dust settled, the five properties had been split into nine, some of which carried extra land that the Dallas-based Westdale could develop or sell to another developer. The complexes now range from 97 units to 460 units. He says the Westdale team came up with the idea to split the properties, but it didn’t know if a lender would approve. “Citibank said ‘that’s fine.’ They realized it was an entrepreneurial play,” he says.

According to Wernick, Citibank provided $21.5 million with a five-year term at a fixed rate pushing 6% and a 30-year amortization. “They are cross collateralized with easy release provisions for sale or development,” he stresses.

Wernick adds the improving market helped to shore up the structured financing because the portfolio actually picked up occupancy points and rent gains on the road to the closing. Although Westdale’s still mapping out its plan, Wernick says most of the borrowed capital will be going into renovations.