According to Avant managing principal Adam Luysterborghs, the Class B property was only 40% occupied at the time of acquisition, but its location in a desirable submarket presented the sponsors with an opportunity to turn around an underperforming asset with substantial upside. He describes the sponsors as experienced multifamily investors with a strong operational presence in the local marketplace. "He had a management team and work crew almost on site already," the Avant exec tells GlobeSt.com. "He's very familiar with the kind of tenant that lives in the area, which made us very comfortable with the transaction."
Lakewood Estates bought the property for $5 million and budgeted an additional $1.5 million for improvements. The fact the owner had successfully rehabbed and leased up two similar properties in the neighborhood was instrumental in persuading Avant to get involved. "For someone else to do the same deal, they would have higher costs," says Luysterborghs. "He had boots on the ground to do the work and rehab the property. He knew what he was doing."
The interest-only loan, which has an interest rate of 5.25%, is convertible to permanent financing upon completion of the renovation and lease-up. It has a loan-to-value ratio is 70% and was secured through Avant's relationship with a community bank.
"Community banks, such as the one involved with this transaction, are often staffed by experienced commercial bankers with very strong local knowledge," says Luysterborghs, who cannot reveal the bank's name. "This local knowledge, when paired with a strong project sponsor, can result in a good working relationship throughout the project and a much more informed consideration of risk for properties in transition. In this sense, the bank and the borrowers are equally winners."
The property includes one- and two-bedroom units ranging from 1,000 square feet to 1,600 square feet. Amenities include patios or balconies in all units, on-site laundry and community swimming pool. The property sold in 2006 for $6 million.
Avant chief underwriter Amy Cheng says the multifamily bridge lender has completed a number of recent closings in Oklahoma City and Dallas. "Many investors are finding value-add opportunities in markets like Oklahoma and Texas, and we are providing multifamily loans on a regular basis to good borrowers," she remarks.
What makes the markets attractive, Luysterborghs explains, is that they don't have the same for-sale inventory overhang as markets such as Denver, Las Vegas, Phoenix and Florida. In addition, he says the long-term demographic trends are very good and the industries based there are countercyclical and tend to do well during a recession.
Avant Capital Partners describes itself as a nationwide multifamily lender that represents a broad range of institutional investors, including Fannie Mae. The company says it is capable of financing both stabilized and in-transition assets.
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