#MAMConf14
Alternative Debt Financing
Options
October 14, 2014
Philip S. Rachels – Senior Vice President, Debt & Structured Finance
CBRE | Capital Markets
Todd Trehubenko – Senior Vice President, Multifamily Finance
Walker & Dunlop
Chris Tokarski – Principal & Managing Director
Coastal Capital Partners
#MAMConf14
TOPICS
1)
Non-recourse high leverage bridge based on total capitalization.
•
2)
We are seeing 80-85% for multi-family at competitive rates
Higher leverage senior CMBS
•
•
3)
Blended mezz into the senior trust
Structured mezz above same senior lender
FHA
•
•
Structure
Timing to close
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Alternative Debt Financing Options
Case Studies
1)
2)
3)
4)
Bridge, Conduit, and Mezzanine – Todd Trehubenko
Acquisition, Reposition, Earn Out – Chris Tokarski
FHA for Acquisition and Conversion – Todd Trehubenko
Broken Condo Sell Down – Chris Tokarski
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New Products in an Evolving Market
• Interim Loan Program (bridge financing) created in 2013
• CMBS program created 2014
• Continuing to diversify – mezzanine, preferred equity, etc.
Can evaluate all opportunities across all channels
Case Study 1
Bridge, Conduit and Mezzanine
• Gulf Coast portfolio acquisition
• 6 Properties in TX and LA
• 1,032 apartments
• Strong competition for portfolio
• $72.2 million in new financing:
o $35.4 million bridge loan over three properties, crossed
o $31.4 million CMBS loan, 10-year term (4 years IO)
o $5.4 million mezzanine loan
• Executed as a single transaction, one underwriting and one closing
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Case Study 2
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Acquisition, Reposition, Earn Out
First Mortgage
/ Mezz
Combination
Purpose
Acquisition
Loan-to-Cost
Initial
65%
Loan-to-Cost
95%
w/ Earnout
Term
3+1+1+1
Amort
IO
Rate
L+4%
Fee
1% in
Call Protection 18 months
Starting DY
5.8%
Stabailzed DY
7.0%
• $32,400,000 ($178,000/unit, $240/SF) for the acquisition of a 10
property portfolio consisting of 173 multifamily units (6 to 60 units
per property).
• Funded $30,400,000 at closing $2MM of future funding for unit
renovations and capital improvements.
• Earn-out of $15MM of additional proceeds upon achieving annually
increasing DY hurdles:
• (6.25%, then 6.5%, then 6.75%)
• minimum DSCR (1.47x through month 12, increasing 6 bps every
12 months thereafter)
• maximum LTV of 75%
• In-place rents across the portfolio are 38.0% below market on average
(subject to rent control).
Case Study 2
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Other Deal Terms
Release Provisions:
•Properties can be released at the greater of
1. 110% of the allocated Loan Amount; or
2. a post-release debt yield on the remaining portfolio equal to the
greater of:
a. 7.00%; or
b. debt yield immediately prior to release
Cash Management:
• Event of Default
• BK proceeding of Borrower, Guarantor or property manager
• DSCR less than 1.35x during the Initial Loan Term
• DSCR less than 1.55x during any Extension Term
• Debt Yield less than 6.0% during Initial Loan Term
• Debt Yield less than 6.75% during any Extension Term
Case Study 3
FHA for Acquisition and Conversion-Hartford
• Acquisition and conversion of vacant office tower
o 286 apartments, targeted LEED Platinum
o $90 million TDC including commercial and garage
• Located in CBD, few comps but strategic, emerging area
• Developer seeking high leverage, long-term financing
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Case Study 3
FHA for Acquisition and Conversion (cont’d)
• Arranged new $37.2 million 1st mortgage through FHA
Section 221(d)(4)
o IO during construction period
o Base permanent loan with 40-year term
o Tranches for tax exemption and LRECs (15 years)
• Subordinated new state debt and equity of $21 million
• Tradeoffs for affordability set-aside, commercial/garage
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Case Study 4
Broken Condo Sell Down Loan
•$17,400,000 for the acquisition of a 25 out of 86 condominium units
•Funded $16,000,000 at closing $1.4 MM of future funding for unit renovations
Sources
Uses
Initial Funding
$ 16,000,000
71%
Acquistion Price
$ 21,000,000
Future Funding
$ 1,400,000
6%
Cap Ex
$ 1,400,000
Total Funding
$ 17,400,000
78%
Sponsor Equity
$ 5,000,000
22%
Total
$ 22,400,000 100%
$ 22,400,000
Purpose
Acquisition
Loan-to-Cost
Initial
78%
Loan-to-Sell Out
62%
Term
3+1+1
Amort
IO
Rate
L+4.75%
Fee
1% in/1% out
Call Protection 18 months
DY
4.75%
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Case Study 4
Broken Condo Sell Down Loan
Cap Stack
Amount
%
LTC
Rate
(L+)
DY
DSCR
First Mortgage
$ 12,180,000 70%
54%
2.50%
6.79%
2.71
Mezz
$ 5,220,000 30%
23%
9.25%
4.75%
1.05
Total
$ 17,400,000
78%
4.53%
4.75%
1.05
•Cheaper First Mortgage Money is L +2.00 – 3.00%, maybe tighter if you can
keep the LTV / DY / DSCR at attractive levels (in 1-1.5% over last 12 months)
•Mezz L+8-10% going up to 75-85% with low DY / DSCR
•Avoid “Dealer” Status for tax purposes by renting units for some period of
time and only selectively selling units
Case Study 4
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Broken Condo Sell Down Loan
Unique Deal Terms
Release Provisions:
• 120% of allocated loan amount pay down until $500 psf is reached, after which
100% of allocated loan amount (leaks equity to Borrower to equity). 100% of
sales proceeds pay down loan on last 5 units to protect against adverse selection.
Interest Rate Step Up:
• Increase in rate equal to .35% if Debt Yield Drops below 4.5%
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Thank You!
Philip S. Rachels
904-630-6363
phil.rachels@cbre.com
Todd Trehubenko
781-375-7527
ttrehubenko@walkerdunlop.com
Chris Tokarski
415-595-8210
tokarski@coastalcp.com