Each deal presents its own set of challenges. Learn how Capital One Multifamily Finance exceeds expectations to meet the needs of its customers.
Out on the plains east of Boulder, Colorado, M. Timm Development has been constructing Grandview Meadows in stages since 2000. The company has proceeded deliberately, building only when the economics were right as it worked to create a first-class property with a full range of attractive amenities. Currently, the multiphase development has 434 units, with a final phase of 80 units scheduled for completion in November 2014. Given its proximity to both the Denver and Boulder markets, occupancy is extremely high.
But the company knew that its tactical approach to construction could prove a liability when it came to securing financing. “We recognized that phased assets can pose problems for lenders,” says Matt Easter, vice president of Timm. “Nonetheless, we approach borrowing with the goal that most investors share: we wanted to obtain long-term financing at the lowest possible rate.”
To meet their expectations, Timm needed an originator with a wide breadth of experience and a willingness to think outside the box. The company found that partner in Chuck Christensen, senior vice president of originations in the Newport Beach, California office of Capital One Multifamily Finance.
Sierra Village Apartments met Trion Properties investment criteria almost perfectly. Trion, a private equity investment company, focuses on value-added and distressed commercial real estate assets with an emphasis on the multifamily sector. It specializes in properties that require moderate-to-heavy rehabilitation on a 12-24 month investment horizon.
The 185-unit Sierra Village Apartments, located in the Sacramento MSA, had languished since it had fallen into receivership in 2006. In 2012, it was included as part of a large $180 million receivership sale in 2012, but it was almost immediately slated for resale. Although the company that purchased it made some capital improvements to the property, it lacked the local market expertise to maximize the value of its expenditures or a strategy that would justify a more comprehensive renovation plan.
Trion believed that with more involved day-to-day management, investment in interior and exterior renovations, and aggressive leasing, there would be significant upside value to the acquisition.
Further increasing its attraction to Trion is Sierra Village’s location in an attractive submarket—North Highlands—within an MSA that is on the cusp of better economic times. Although the Sacramento MSA—the seat of California government—was hit hard by the recession, the state has weathered its budget crisis, and unemployment in the Sacramento MSA has declined 200 basis points over the last year.
To take advantage of this opportunity, though, Trion needed financing structure that would maximize the funds it could invest in the property and give it time to realize the value-added from its improvements.
SGI Partners, LLC., a Commercial Real Estate Investment company based out of Santa Ana, California, approached Beech Street Capital to finance the acquisition of The Villages at Lost Creek located in San Antonio, Texas. A key priority for the borrower was to obtain financing that produced the highest amount of cash flow to enable them to upgrade the 260-unit complex and move it from a B- to A-class property through renovation.
The borrower also faced some legal complexities to work through that had the potential to impact their timeline, including existing tax-exempt bonds and occupancy restrictions that would remain in place under a Land Use Restriction Agreements (LURA) until 2021. A late hour change in the borrowing structure right before closing also added to the challenge.
The U.S. Real Estate Investment Fund, which is managed by Boston based Intercontinental Real Estate Corporation, holds offices and apartments as well as industrial, retail, and mixed-use properties. When the fund’s managers decided to add The Westheimer, a 244-unit luxury apartment in Houston, to their portfolio, they turned to Beech Street’s Brian’s Sykes, senior vice president based in its Boston office.
The fund’s managers had good reason for being confident that Sykes would come through for them. Although new to the fund, Sykes had previously originated two deals with Peter Palandjian, chairman and CEO of Intercontinental and he understood their objectives perfectly. “The borrowers wanted to strike a balance,” he says. “Their goal was to maintain a low overall leverage position for the fund, while maximizing the cash-on-cash yield for their investors.”
US TREASURY RATES
As of Friday July 25, 2014
|5 Year Bond||1.676%||-2.02%|
|7 Year Bond||2.129%||-3.13%|
|10 Year Bond||2.467%||-3.86%|
|30 Year Bond||3.239%||-5.84%|