Our Perspective 5/ 12/ 2020

Capital Corner: Transacting Due To Lender Diversity

NorthMarq continues to navigate through a dynamic capital market by sourcing and executing on a wide range of capital needs on behalf of our clients. Overall, we are seeing improvement in many areas, as cautious optimism for opportunities to deploy capital are visible with renewed activity in lenders and investors.

As the market continues to evolve, NorthMarq’s fully diversified capital platform continues to provide best-in-class options throughout the capital stack. The full spectrum of capital coupled with our seasoned professionals’ ability to “grind” through challenges by collaborating with our clients delivers results. Equally important is the close coordination among debt, equity and investment sales professionals to create opportunities for investors, from recapitalization to bridge financing or refinance with take-out capital.

This week’s Capital Corner highlights several of those transactions to share perspective on the current market conditions.

EQUITY
Equity investors are seeking opportunities within today’s environment. Acquisition of multifamily new construction at a discount to replacement cost, value-add multifamily where the property operations have remained consistent, and select opportunities to invest in new construction have all been active.

Accretive debt from the agencies and insurance companies boosts the value thesis for groups looking for those types of investments. Additionally, build-to-suit industrial and build-to-suit office have attracted invested form a wide range of investors. Opportunistic acquisitions continue to be in demand along properties where overall performance has had minimal impact through the year.

JV equity partner funds $45 million in opportunity zone equity for Seattle multifamily development

12th & Yesler 

Jake Leibsohn and Ron Peterson of NorthMarq’s Seattle regional office arranged $45,000,000 in JV equity for the development of 12th & Yesler, on behalf of co-sponsors, Trent Development and Hatteras Sky. The to-be-built 274-unit multifamily property is located at the corner of 12th Ave South and East Yesler Way, in Seattle, Washington in a qualified opportunity zone.

The team looked for a JV partner with a strong track-record of funding OZ projects, which came through Bridge Investment Group. The JV group also had ample experience in multifamily construction and ownership. “We are excited to watch construction begin on this gateway building to Yesler Terrace’s vibrant community,” said Leibsohn. Learn more.

Vineyards at Arlington Apartments

Sale and financing of Vineyards at Arlington Apartments completed with bridge financing package
Vineyards at Arlington Apartments, comprised of 31 two and three-story buildings with 396 multifamily units, was a true class-B, value-add opportunity with 100 percent classic interiors. Pegasus Real Estate, LLC, the buyer, plans expansive renovation to better compete in the submarket, and worked with NorthMarq to secure acquisition financing and an equity partner for a large future-funding component for the renovation plan.

The Dallas team of Stephen Whitehead, Lauren Bresky, Will Hancock, Taylor Snoddy, James Roberts, and Philip Wiegand, senior vice collaborated the sale and capital structure and closed during the early days of the pandemic-induced slowdown. Learn more.

LIFE COMPANY DEBT
Life company activity has increased as stability in alternative asset classes has helped to solidify their commitment to CML exposure. Market-leading, long-term fixed rates along with the ability to structure flexible prepay options are competitive advantages for the Life Companies. Another advantage for the Life Companies is their ability to provide creative structures to accommodate a rage of different investment strategies. Specifically, the ability to structure for pre-leased multifamily acquisitions has seen a recent uptick in activity.

With more life company relationships than any other firm, NorthMarq’s debt experts can adjust their capital stack when lenders change their parameters. While some life companies have modified their property type or submarket targets, the ability to move quickly to save deals requires up-to-the minute knowledge of those targets. In these two cases, the team was able to save deals due to the lender’s decision to stay in the transaction or the NorthMarq team’s ability to find a new partner at the last minute.

Keltonwood at Berewick

Life company relationship provides $26,360,000 acquisition financing during market complications
Bob Harrington and Joel Heikenfeld collaborated to secure acquisition financing of $26.36 million for Keltonwood at Berewick despite challenges from the market slowdown. The 230-unit multifamily property in Charlotte, North Carolina, was acquired with a 3.10 percent fixed rate loan, structured with a 10-year term with 5-years of interest-only followed by a 30-year amortization schedule through a life company relationship.

The buyer was under contract to close the new-construction asset during lease-up, but during the closing process, the country began to shut down due to the pandemic, leading to issues with the deal’s equity partner, and a renegotiation and extension of the purchase contract.

“When all the dust settled, our correspondent life insurance company held true to their terms and rate lock, and our client was able to close on this trophy asset,” said Harrington.

“Great teamwork and communication by all – including the buyer, seller, lender and closing teams – made this a successful transaction,” said Heikenfeld. Learn more.

Mediterranean Village

$75 million refinancing secured with life company lender for multifamily property in Costa Mesa, California
Nathan Prouty and Andy Slaton in NorthMarq’s San Francisco office arranged the $75 million permanent refinancing of Mediterranean Village, a 508-unit multifamily garden apartment property in Costa Mesa, California.

The financing structured from the existing life company lender offered a 10-year term of interest-only payments with a fixed-rate just shy of 3 percent with discounted prepayment premium on the existing loan. This allowed the borrower, an affiliate of E&S Ring, to pull out a significant amount of equity (3x the existing balance) to fund a variety of capital improvements at the property while maintaining the same level of debt service and distributions to its partners.

“We were fortunate to structure the deal and lock rate prior to COVID-19. As one of our top correspondent lenders, this life insurance company honored their commitment and remained focused and flexible throughout the transaction,” said Slaton. Learn more.

AGENCY DEBT
Through the first part of this year, much of our Agency activity has been borrowers electing a fixed-rate option to capture the extremely low all-in rates. Fixed rates are currently ranging between 2.85 to 3.75%, contingent upon the details of the request. However, we have seen a resurgence in floating rate requests over the past several weeks, as more owners seek flexibility for a finance-to-sale strategy to take advantage of the floating spreads.

In some cases, we have seen Agency floating rate spreads compress as much as 50 bps resulting in sub 3.00% all-in rates, thus providing many better options than balance-sheet lenders can provide. These two examples illustrate that strategy.

Retreat at the Park

$25.3 million acquisition financing arranged through Fannie Mae for multifamily property in Burlington, North Carolina
Melissa Marcolini-Quinn and Lee Weaver collaborated to arrange a $25.3 million loan for Carter Exchange (a Carter Funds company) to acquire Retreat at the Park a 249-unit, three-story conventional multifamily property in Burlington, North Carolina.

The permanent fixed-loan with NorthMarq’s Fannie Mae DUS platform included a 10-year term with five years of interest-only followed by a 30-year amortization schedule. Despite closing in the midst of the pandemic, the loan closed on time due to the long-term relationship with the client, Carter Funds, and the hard work of NorthMarq’s Fannie Mae team.

“In this time of market volatility and unprecedented challenges, closing this transaction was definitely one for the books. Despite the interruptions and ‘hiccups’ caused by the COVID-19 virus, our team was able to close this loan on schedule,” said Marcolini Quinn. Learn more.

Tuscan Heights Apartments

$28,500,000 Freddie Mac refinancing for Tuscan Heights Apartments stays on track in Greer, South Carolina
Dave Stewart and Ryan Taylor in NorthMarq’s Charlotte office secured the $28.5 refinancing for Tuscan Heights Apartments through Freddie Mac. The loan for client STM Development was structured with three years of interest-only on a ten-year term and sub-3.30 percent fixed rate pricing. The 252-unit community in the active Greer submarket has an irreplaceable location, benefitting from immediate access to I-85 and located just north of the I-85 and the Pelham Road interchange.

“In an extremely turbulent time in the market, we were able to deliver a deal that closed as submitted. This surety of execution is what has given our clients the confidence to work with NorthMarq on both their debt and equity needs,” said Stewart. Learn more.

IN CLOSING

Our best advice is to persevere and preserve your business plan. We’ll offer the capital options that you may be new to you, but our experts will continue to provide certainty of execution, regardless of the market conditions. Let us know how we can help you.