Dealmaker: George Smith Partners Secures $31M for Two Multifamily Assets

George Smith Partners, Los Angeles, secured $31.3 million in construction and bridge financing for two Los Angeles apartment properties.

In the city’s Koreatown district, GSP Principals and Managing Directors Jonathan Lee and Shahin Yazdi arranged $22.3 million for the ground-up development of a 51-unit workforce multifamily property with 3,350 square feet of ground-floor retail. The property developer is a joint venture between Index Real Estate Investments and Ketter Construction.

“Development in Koreatown is booming, presenting both advantages and challenges for property owners,” Lee said. He called the new property an opportunity for the Index Real Estate/Ketter Construction partnership to deliver a property that will attract consistent renter demand from people priced out of more expensive LA submarkets.

The current challenge for owners and developers is high competition for financing, Yazdi said, citing JLL research that found 34 developments currently underway in Koreatown that will contribute 3,000 housing units, 474 hotel rooms and 380,000 square feet of retail in the years ahead. “With so much construction in the market, borrowers must be prepared for creative solutions to compete for competitive debt,” he said. “In this case we were able to achieve financing for 89 percent of the project cost by bifurcating the loan structure. This strategy enabled us to achieve competitive terms among several finance sources.”

The team structured the financing as an A/B execution with a senior lender willing to advance up to 75 percent of cost subject to a 65 percent valuation upon stabilization. They then layered on a $5 million mezzanine tranche and negotiated a partial deferral of the development fee to round out the capital stack.

The $17.3 million senior loan priced at LIBOR plus 375 and a half points for the 36-month term. The $5 million tranche priced at 12.25 percent annual.

The new development at 3057 West Pico represents Index Real Estate and Ketter Construction’s second development in Koreatown in recent years. The partnership also developed a 40-unit for-sale condominium project on Harvard Blvd. and 11th Street.

Index Real Estate Investments Principal Pablo Kupersmid said the property will provide quality housing with on-site amenities including ground-floor retail, an open community space and a fitness center, “without over-amenitizing, making it a perfect fit for workers in the region.”

Construction is underway on the development, with an anticipated completion date in early 2020.

GSP also arranged a $9 million, 80 percent loan-to-value first mortgage on a 1920’s-vintage multifamily asset in downtown Los Angeles. The property previously had some unforeseen operational challenges that prevented the sponsor from maximizing cash flow and limited its eligibility for competitive financing terms.

GSP Principal Gary Mozer, Senior Vice Presidents Katie Rodd, Michael Anderson-Mitterling and Kyle Howerton and Assistant Vice President Nick Rogers identified a regional balance sheet lender that provided a five-year loan that included funding for the sponsor’s renovation plan.

The fixed-rate loan priced at 6.5 percent with two years of interest-only payments to maximize cash flow during the renovation. It eliminated interest rate risk during the term and included an interest reserve to cover debt service during the peak repositioning period. The recourse obligation burns off when the property achieves predetermined debt service coverage hurdles.