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| Transaction Description: George Smith Partners placed a land acquisition and infrastructure construction loan secured by 165 acres of a master planned community in Albuquerque, New Mexico. The collateral allows for over 1,100 apartment units, almost 600 single family residences, plus some commercial development. The Sponsor will develop residential lots and sell them to national and regional homebuilders. Financing included an initial funding to repay the existing lender and other expenses plus a secondary facility to fund future construction of residential lots and infrastructure. The two year term was limited to 65% of current value but was 87% of the actual acquisition price. Financing also allows for a full interest reserve and funding of 65% of new construction costs going forward. Fixed at 12.5%, the loan carries a 30 day interest prepayment penalty. |
| Challenge: Financing this project offered several challenges. Since the last real estate cycle, unimproved residential land has fallen out of favor because it is a non-cash flowing asset and takes considerable time to monetize, posing considerable risk to a lender. Next, the Sponsor was involved with complex negotiations for a discounted payoff to the existing lender and restructuring payments to bondholders. Finally, Albuquerque is considered a tertiary market and, therefore, it is not a popular target location for many lenders and investors. Together, these challenges presented a formidable task to sourcing a financing partner. |
| Solution: GSP immediately commenced on a targeted marketing effort to well-suited financial partners and sourced a capital provider who was not only knowledgeable about the location and marketplace, but also comfortable with 1) the investor’s expertise consisting of 35 years of land development and homebuilding experience including more than 20 years in Albuquerque; 2) a land basis that was the lowest in the marketplace; 3) level of guarantee (full recourse); and 4) a business plan that included already executed homebuilder contracts for residential lot purchases. GSP vetted the risk exposure upfront with the new capital provider and worked to structure objective criteria to satisfy the Sponsor and Lender. |
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| Rate: 12.5% |
| Term: 24 Monthsw/extension |
| Amort: Interest Only |
| LTV: 65% |
| Prepayment: 30 Days of Interest |
| Recourse |
| Lender Fee: 3 Points |
| Advisor: Loren Bedolla |
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