Continental Partners Secures $19M for L.A. Assets
- Aug 04, 2017
Commercial real estate investment banking firm Continental Partners has secured financing for three Los Angeles multifamily properties totaling 180 units.
Director Zalmi Klyne, who arranged the financing for all three deals, characterizes multifamily investment activity in Los Angeles as robust. Demand for housing is outstripping supply, in spite of the surge in new construction in specific submarkets, yielding sub-four-percent vacancies and year-over-year rental increases.
“In this specific submarket, all three assets are in the same corridor,” he told MHN.
“There’s a lot of luxury development in the works, and some lenders are shying away because they expect 3,000 units to come to market by 2021. There’s only ‘x’ number of people who can afford to rent luxury apartments in that area,” Klyne continued. “The people moving in and paying these rents are not those living in the area for 20 years. They’re people coming from downtown, roommates renting apartments with two names on the lease and folks preferring to drive a few miles to rent more affordably than they can downtown.”
New Westlake development
Continental Partners secured $8.4 million in ground-up construction financing for a 47-unit multifamily development to include subterranean parking in the Los Angeles submarket of Westlake. The sponsors were a luxury single-family home developer and a multifamily operator that partnered in a joint venture.
Due to the many new luxury multifamily units being delivered to this submarket, lenders approached the financing of this development warily. Continental Partners surmounted this obstacle by demonstrating the sponsors’ proven track records and by delivering a number of comps justifying demand for housing in the submarket. The firm negotiated a competitive structure by convincing the lender to underwrite the loan based on the appraised value of the proposed project, not the land’s purchase price. The 24-month, interest-only loan is sized to 65 percent of cost and priced at prime plus one percent.
Existing Westlake property
Continental Partners arranged $6.6 million in refinancing for a property made up of two side-by-side apartment buildings totaling 88 units in Westlake. The sponsor, a private investor, purchased the property in 2013 and subsequently stabilized the community through substantial renovations. The sponsor sought a permanent loan to refinance the property and cash out 100 percent of the initial equity.
Some lenders balked at the cash-out component, but Continental Partners overcame those reservations, securing a 10-year, fixed-rate loan with a three-year, interest-only period followed by a 30-year amortization. The non-recourse loan is priced at a rate of 4.32 percent and sized to 65 percent of value.
East Hollywood multifamily
Continental Partners secured $4.7 million in acquisition financing for a 49-unit multifamily community in the Los Angeles submarket of East Hollywood. The sponsor sought a fixed-rate loan to finance the acquisition and renovation of this value-add community with plans to undertake a repositioning that would bring rents up to market. Gaining financing was challenging for a number of reasons, including the community’s smaller unit sizes and below-market rents.
Klyne explained the sponsor’s value-add investment strategy and lengthy experience in the market. Based on the projected value of the property after completion of renovations, Continental Partners gained a five-year, fixed-rate loan with a one-year, interest-only period, followed by a 30-year amortization. Sized to 61 percent of the purchase price, the non-recourse loan is priced at 3.75 percent.
“I think the key is our relationships with the lenders and our ability to walk them through the business models of our clients” on new development deals, Klyne said.
“We show the track record of our clients, indicating they know the market well, their headquarters are within half a mile of all the buildings we’re financing, they have ways of attracting tenants, they do a good job at what they do and with their expertise and years in the business, they won’t have an issue with the asset.”
In March, Continental Partners secured $5.3 million in financing for the conversion of a San Francisco office building to micro-unit apartments.
Image courtesy of Brower, Miller and Cole