INSIDE THE DEAL: 10 Years Later, Love Funding Refis 1999 Loan with Favorable Results for Borrower

By Keat Foong, Executive EditorElkton, Md.—The owner of Apartments at Iron Ridge here has made a good deal on his 1999 development. The property was originally developed using a construction loan which rolled over into a 30-year permanent loan rollover financing under the FHA 221(d)(4) mortgage insurance program. Ten years later, the development company, MHTJ Enterprises LLC, which still owns the property, refinanced the original loan, dropping the interest rate from 7.75 percent on the FHA 221(d)(4) loan to a below-6 percent Fannie Mae 10-year fixed-rate loan obtained from Love Funding. As a result, the borrower was able to save $123,000 per year on debt servicing costs, says Laura Saull-Smith, senior vice president with Love Funding who originated the Fannie Mae loan. Moreover, the borrower asked for a low leverage of 64 percent, but even at that lower leverage, he was able to take out about $500,000 in cash for potential future projects. “This was a win-win situation,” says Saull-Smith. This is the second time this project has been financed by Saull-Smith. Working for Love Funding, she also originated the construction financing for the borrower 10 years ago, in 1999. “With the current state of the economy and continued market uncertainty, having a little extra cash on hand never hurts,” says Saull-Smith. The borrower wanted to lower his interest payment, but the prepayment lock-out period on the original FHA 221(d)(4) loan was 10 years. At the time, Fannie Mae offered the lowest prevailing interest rate. Love Funding prepared for the refinancing, and when the prepay lockout expired on April 30, the loan was refinanced to the day. The borrower did not want a high leverage although he could have gotten up to 75 percent, says Saull-Smith. “It is very unusual on borrower’s side that they would not want a high leverage,” says Saull-Smith. “It is refreshing from my point of view.” The property is located on a 12.9-acre parcel on the eastern side of Iron Hill Road in the Cecil County, Md. section of the Greater Wilmington MSA. Amenities include a tennis court, swimming pool, children’s play area, weight room and clubhouse.  The property is also 2.85 miles south of the University of Delaware, although it is not primarily student housing, says Saull-Smith.What acted in the borrower’s favor were “the strong occupancy, the strong history, and the strong borrower,” says Saull-Smith. Plus, “given the fact the borrower had built and held the property since day one, that made Fannie Mae comfortable that the borrower and manager knew what they were doing,” she says. MHTJ, a privately owned company, also operates other multifamily and retail properties in the metro area, she says. And what is it like to refinance a 1999 loan 10 years later with the same borrower? “I’ve been with Love since 1990,” says Saull-Smith. “The most important client is one that I develop a long-term relationship with. My business plan from Day One is to develop long-term relationships. It is always easier to do deals with repeat clients and such a pleasure. This business is about relationships. That’s what’s important.”