Colorado Rental Community Gets Cash-Out Refinance

Kipling Village LLC has gained $12.2 million in the cash-out refinance of Kipling Village Apartments, the result of efforts on its behalf by commercial real estate investment banking firm George Smith Partners.

Wheat Ridge, Colo.—Kipling Village LLC has gained $12.2 million in the cash-out refinance of Kipling Village Apartments, the result of efforts on its behalf by commercial real estate investment banking firm George Smith Partners.

Kipling Village Apartments is a 40-year-old, 308-unit apartment complex in the Denver suburb of Wheat Ridge, Colo. Kipling Village LLC asked George Smith Partners to tackle the job of securing the maximum cash-out refinance of the property, with the intention of using the funds to pursue investment opportunities in Colorado, Nevada and California. Kipling Village LLC’s existing lenders were not interested in financing properties located in tertiary markets.

What could Los Angeles-based George Smith Partners provide that competitive firms could not?

“We have a long-standing and deep relationship with the Fannie Mae correspondent that allowed us to collaborate effectively on solutions to issues as they surfaced,” George Smith Partners vice president Steve Stein tells MHN. “It wasn’t as difficult to find an amenable lender as it was to find the right fit for the loan assignment, and one that would match well with the sponsor.”

Because the Kipling Village Apartments refinance was a full-leverage loan request on a decades-old property, potential lenders focused increased scrutiny on the monthly reserve requirements for ongoing repairs. Many lenders also required a summary of immediate property repairs prior to loan refinancing.

“This property presented a number of significant challenges in order to achieve financing,” Stein says. “One major challenge we encountered was that the property was collecting rents for 96 percent of the community’s 308 units, while seven percent of these were non-conforming units.

“Standard protocol for lenders when underwriting a loan is to exclude the income for non-conforming units, while still counting the expenses associated with these units against the total net operating income for the property.

“By utilizing these standards, the property’s reportable NOI and loan proceeds were substantially lowered, making the property much less attractive to potential lenders.”

To counter the issue of the non-conforming units, George Smith Partners worked collaboratively with the underwriter to meticulously select specified units to exclude in the property’s income calculation. This selection procedure assisted in minimizing the negative impact of the non-conforming units on the reportable profits of the property, and revealing the property’s true strength to lenders.

“By optimizing the client’s operating budget, including the capital repairs budget, we were able to improve the property’s reportable net operating income, and ultimately attract interested lenders,” Stein says. “As a result we were successful in finding and securing financing for our client from a lender that understood the value in the property, and did not artificially constrain the property’s loan-to-value based on its tertiary location.”