The Latest in Multifamily and Co-Op Underlying Mortgage Financing
November 2012
Recently our firm delivered a commitment letter for a $9,000,000 10-year fixed-rate loan to refinance a 105-unit, pre-war co-op building in Brooklyn Heights, NY. Pricing for the requested interest-only loan is in the very low 3% range. The loan structure also provides for a $1,000,000 revolving line of credit with an interest rate which floats above LIBOR to handle any unforeseen capital needs should they arise during the loan term. The new loan structure will provide this co-op with approximately $5 million of surplus loan proceeds to pay for important repairs and capital improvements. This borrower selected an interest-only structure, however many borrowers tend to opt for a loan amortizing on a 30-year schedule.
The latest in multifamily and co-op underlying mortgage financing:
Realistically, I would not count on today's unusually low interest rates remaining available for an extended period of time. Sub-3% pricing is only applicable to low-leverage, multifamily properties or for co-op underlying mortgages on loans in the $8 to $20 million and larger range. Smaller, high-quality, low-leverage deals are priced slightly higher (for example, one very high-quality Park Avenue co-op's $4 million underlying mortgage is priced at 3.25% for a 10-year, fixed-rate, interest-only loan).
Certainly we would suggest that every co-op board and multifamily property owner in and around New York City should review the prepayment penalty on their current underlying mortgage and consider whether it might make sense to refinance now (or perhaps lock in a rate now for a closing to occur nine months hence). Our firm is always prepared to perform a thorough analysis to help borrowers consider their options (and to calculate the pre-payment penalty on their existing mortgage) with no obligation.
Forward loan commitments and early rate locks continue to be immensely important tools enabling borrowers to lock in a low rate today, but to delay closing for up to 9 months, thus, in many cases, helping them to get the best of both worlds: a) avoid paying a big prepayment penalty on the old loan, while b) locking in a great, low rate on the new loan. Our firm is deeply attuned to the co-op community and once again this year I was invited to be a speaker at the Council of New York Cooperatives Annual Housing Conference held on November 11th at Baruch College. The benefits of structuring forward commitments for co-op corporations was one of the important topics that we discussed at the seminar titled "Refinancing the Co-op's Underlying Mortgage".
Construction Loans and Joint Ventures are BACK -
Many of our clients are real estate developers, particularly developers of new Manhattan and Brooklyn condominiums. Consequently we have been closing a steady stream of construction loans along the following lines: approximately 65% loan-to-cost, with an interest rate of 4.5% for ground-up luxury condominium developments and rental projects in good locations. Recent locations where we have been able to successfully source and close construction financing include: TriBeCa (3 deals), Brooklyn, (2 deals), and Long Island, (1 deal). In addition, we have been arranging joint ventures and bringing together developers with capital partners, as well as arranging sales of development sites (one such $26,500,000 sale of a TriBeCa development site closed on October 23rd, 2012).
Demand for new condos (especially high-end product) is up, while inventory is down. It is important to note however, that construction lenders are only interested in lending to developers with a successful track record, that are financially strong and in possession of, or in contract to buy, a well-located property acquired at a good basis, with all required approvals and entitlements either already in hand, or at least well within sight.
Back in 2006 or 2007 a developer might only have needed to provide 10% - 20% of the equity for a project, however in today's world, even very successful developers often need a joint venture partner in order to be able to come up with the 35% - 40% of equity that most construction lenders require.
---
Winter & Company is often situated at the epicenter of many transactions, capital sources, buyers and sellers, and as such, is ideally positioned to source joint venture equity and help to create winning partnerships for development deals. Yes, banks are lending, but the equity bar has been raised: the development team must be strong; with the necessary financial firepower (read: liquidity) and requisite development expertise in order to attract funding.
The following will describe the dynamics of a recently closed debt and equity financing assignment:
Winter & Company has closed $24,446,710 in debt and equity financing in connection with a multi-phase transaction to acquire, design and build a six-unit, amenity-rich, luxury condominium development on a quiet street between West Broadway and Hudson Street in TriBeCa, NYC.
Initially Winter & Company arranged a $6,000,000 bridge loan to facilitate the $10,000,000 site acquisition. The acquisition/bridge loan carried a rate of 4.5% and a term of 24 months, interest-only. Then, during the time that the project was being designed and presented for approvals to the D.O.B. (the NYC Dept. of Buildings) and the LPC (the Landmarks Preservation Commission), Winter & Company sourced a Joint Venture Equity partner, adequately capitalizing the project and allowing the developer to recover the majority of his original equity contribution.
The$16,160,000 construction loan carries a rate of 4.5% and a term of 24 months. As is typical in today's development deals, the construction loan equates to a loan-to-cost of approximately 63% and is personally guaranteed by a developer with strong net worth, liquidity and a track record of relevant experience of building and successfully selling luxury property in TriBeCa, NYC's priciest zip code.
The joint venture equity partner sourced by Winter & Company will make an initial equity contribution to the Venture of $8,286,710 and will add bandwidth to the project's sponsorship both in terms of financial strength and experience. While this project aims at the ultra-high end, $2,500+ per square foot market, there is far more demand than supply in this rarefied market segment, and the developer has proven that he knows how to deliver the correct design, finishes and amenities needed to complete construction and successfully sell at that level.
Winter & Company is a Manhattan-based, commercial mortgage advisory firm that specializes in arranging development and construction financing, financing for multifamily and mixed-use properties, and arranging cooperative underlying mortgages. Its affiliate, W Financial Fund, LP (www.w-financial.com) is a direct private bridge lender providing short-term, special situation financing, primarily for NYC multifamily and mixed-use properties.
You can reach me at your convenience if you would like to discuss any financing scenarios at (212) 532-1122 x1 | gregg@winterandcompany.com.
Best regards,
Gregg Winter
Check out Winter & Company at http://www.winterandcompany.com
Recently our firm delivered a commitment letter for a $9,000,000 10-year fixed-rate loan to refinance a 105-unit, pre-war co-op building in Brooklyn Heights, NY. Pricing for the requested interest-only loan is in the very low 3% range. The loan structure also provides for a $1,000,000 revolving line of credit with an interest rate which floats above LIBOR to handle any unforeseen capital needs should they arise during the loan term. The new loan structure will provide this co-op with approximately $5 million of surplus loan proceeds to pay for important repairs and capital improvements. This borrower selected an interest-only structure, however many borrowers tend to opt for a loan amortizing on a 30-year schedule.
The latest in multifamily and co-op underlying mortgage financing:
Realistically, I would not count on today's unusually low interest rates remaining available for an extended period of time. Sub-3% pricing is only applicable to low-leverage, multifamily properties or for co-op underlying mortgages on loans in the $8 to $20 million and larger range. Smaller, high-quality, low-leverage deals are priced slightly higher (for example, one very high-quality Park Avenue co-op's $4 million underlying mortgage is priced at 3.25% for a 10-year, fixed-rate, interest-only loan).
Certainly we would suggest that every co-op board and multifamily property owner in and around New York City should review the prepayment penalty on their current underlying mortgage and consider whether it might make sense to refinance now (or perhaps lock in a rate now for a closing to occur nine months hence). Our firm is always prepared to perform a thorough analysis to help borrowers consider their options (and to calculate the pre-payment penalty on their existing mortgage) with no obligation.
Forward loan commitments and early rate locks continue to be immensely important tools enabling borrowers to lock in a low rate today, but to delay closing for up to 9 months, thus, in many cases, helping them to get the best of both worlds: a) avoid paying a big prepayment penalty on the old loan, while b) locking in a great, low rate on the new loan. Our firm is deeply attuned to the co-op community and once again this year I was invited to be a speaker at the Council of New York Cooperatives Annual Housing Conference held on November 11th at Baruch College. The benefits of structuring forward commitments for co-op corporations was one of the important topics that we discussed at the seminar titled "Refinancing the Co-op's Underlying Mortgage".
Construction Loans and Joint Ventures are BACK -
Many of our clients are real estate developers, particularly developers of new Manhattan and Brooklyn condominiums. Consequently we have been closing a steady stream of construction loans along the following lines: approximately 65% loan-to-cost, with an interest rate of 4.5% for ground-up luxury condominium developments and rental projects in good locations. Recent locations where we have been able to successfully source and close construction financing include: TriBeCa (3 deals), Brooklyn, (2 deals), and Long Island, (1 deal). In addition, we have been arranging joint ventures and bringing together developers with capital partners, as well as arranging sales of development sites (one such $26,500,000 sale of a TriBeCa development site closed on October 23rd, 2012).
Demand for new condos (especially high-end product) is up, while inventory is down. It is important to note however, that construction lenders are only interested in lending to developers with a successful track record, that are financially strong and in possession of, or in contract to buy, a well-located property acquired at a good basis, with all required approvals and entitlements either already in hand, or at least well within sight.
Back in 2006 or 2007 a developer might only have needed to provide 10% - 20% of the equity for a project, however in today's world, even very successful developers often need a joint venture partner in order to be able to come up with the 35% - 40% of equity that most construction lenders require.
---
Winter & Company is often situated at the epicenter of many transactions, capital sources, buyers and sellers, and as such, is ideally positioned to source joint venture equity and help to create winning partnerships for development deals. Yes, banks are lending, but the equity bar has been raised: the development team must be strong; with the necessary financial firepower (read: liquidity) and requisite development expertise in order to attract funding.
The following will describe the dynamics of a recently closed debt and equity financing assignment:
Winter & Company has closed $24,446,710 in debt and equity financing in connection with a multi-phase transaction to acquire, design and build a six-unit, amenity-rich, luxury condominium development on a quiet street between West Broadway and Hudson Street in TriBeCa, NYC.
Initially Winter & Company arranged a $6,000,000 bridge loan to facilitate the $10,000,000 site acquisition. The acquisition/bridge loan carried a rate of 4.5% and a term of 24 months, interest-only. Then, during the time that the project was being designed and presented for approvals to the D.O.B. (the NYC Dept. of Buildings) and the LPC (the Landmarks Preservation Commission), Winter & Company sourced a Joint Venture Equity partner, adequately capitalizing the project and allowing the developer to recover the majority of his original equity contribution.
The$16,160,000 construction loan carries a rate of 4.5% and a term of 24 months. As is typical in today's development deals, the construction loan equates to a loan-to-cost of approximately 63% and is personally guaranteed by a developer with strong net worth, liquidity and a track record of relevant experience of building and successfully selling luxury property in TriBeCa, NYC's priciest zip code.
The joint venture equity partner sourced by Winter & Company will make an initial equity contribution to the Venture of $8,286,710 and will add bandwidth to the project's sponsorship both in terms of financial strength and experience. While this project aims at the ultra-high end, $2,500+ per square foot market, there is far more demand than supply in this rarefied market segment, and the developer has proven that he knows how to deliver the correct design, finishes and amenities needed to complete construction and successfully sell at that level.
Winter & Company is a Manhattan-based, commercial mortgage advisory firm that specializes in arranging development and construction financing, financing for multifamily and mixed-use properties, and arranging cooperative underlying mortgages. Its affiliate, W Financial Fund, LP (www.w-financial.com) is a direct private bridge lender providing short-term, special situation financing, primarily for NYC multifamily and mixed-use properties.
You can reach me at your convenience if you would like to discuss any financing scenarios at (212) 532-1122 x1 | gregg@winterandcompany.com.
Best regards,
Gregg Winter
Check out Winter & Company at http://www.winterandcompany.com
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