$7,850,000, 40 Unit Ground-Up Apartment Construction Loan, Los Angeles, California

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Transaction Description: GSP arranged the financing for a 40 unit ground-up apartment development in Hollywood, California. The developer had assembled the land over a period of years, and originally intended to develop a “For-Sale” building. Because of the strong demand in the Hollywood market, coupled with a comparatively low basis in the land, the Borrower was able to attract private, passive JV equity to co-invest in the transactions.
Challenge: The Borrower’s previous construction projects were financed by a bank that had stopped lending on construction following the credit crises. While the previous projects were successes, the Borrower struggled to attract debt without a clear pipeline of future projects and the personal capital to build out all of the proposed developments. The Borrower’s private equity sources were reluctant to sign full personal repayment guarantees.
Solution: GSP worked with the Borrower to demonstrate a clear pipeline of projects based on existing assets and future business plans. The Borrower was able to secure capital partners through his private network. The new investors agreed to sign on the current loan but only in a secondary position after all other remedies for cure have been solved. This bolstered financial strength of the request, combined with a clear pipeline of future business gave the lender sufficient confidence to proceed with the loan. To shield the private investors, GSP negotiated a several pro-rata recourse agreement for the investors to a capped amount, which is significantly less than the loan amount. This gave the investor partners comfort that they are not exposed to the full repayment guarantee.
Rate: LIBOR+275
Term: 3 Years + 24 Month Extension
Amort: 30 Years
LTC: 65%
Recourse
Brokers: Jonathan Lee, Shine Cheng
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