602.387.5311
Background:
CMS was asked to explore financing on a 450-unit multi-family property in the Mideast. A recent appraisal valued the property at $27.4MM. The property had a $21.75MM CMBS loan that was maturing in the next five months.Ownerships objectives were to a) cover as much of the current loan payoff as possible with the new loan financing, and b) obtain the best rate possible on the new loan. Prior to contacting CMS, ownership had explored HUD and FNMA financing and received a proposal from a FNMA lender that was 70% LTV. The owners had submitted the application and application fees to the lender. CMS identified a FNMA lender that would fund 80% LTV based on ownerships meeting the underwriting criteria of the lender. Strong sponsorship would be needed to obtain this loan.
Outcomes:
1. Funding took 70 days from the date of application:
1/20/12 – 3/30/12
2. Loan Amount: $21.7MM
3. Term: 120 months
4. Interest Rate: 4.47%
5. Origination Fee: $160,000
6. Title, Escrow, Legal fees: $47,000
7. Reserves: Rolled over from original loan
Lessons:
1. Sponsorship issues were the largest challenge.
2. The recent commercial real estate crisis has resulted in decreased values of CRE properties, and weakened the financial statements of investors.
3. Mortgage loans need sponsors: individuals or entities that will guarantee the loan against fraudulent practices by ownership. Mortgage loan provisions that address these issues are referred to as “Bad Boy Carve-outs.”
4. The Sponsor(s) typically need to provide strong financial statements to qualify. General guidelines are liquidity approximating 10 -20% of the loan amount, and net worth approximating 100 -150% of the loan amount.