LOS ANGELES-What's believed to be the first non-recourse construction loan since the economic downturn will back a new townhome-style condominium development here.

The $11.8-million loan was secured by George Smith Partners on behalf of a joint venture between TAAG Investment Management and an undisclosed private equity fund.

The financing will be used for the development of Latitudes at Silverlake, a 63-unit, for-sale condominium project located in the trendy Silver Lake neighborhood here. The project consists of 63 for-sale condominiums, including two, three, and four-bedroom floor plans ranging from 1,300 square feet to 1,900 square feet. The property will feature a modern architectural design with roof top decks for select units, as well as large common areas and a pool.

George Smith Partners VP Jonathan Lee was assisted by analyst Shine Cheng in obtaining the loan. An undisclosed “local lender” provided the funding.

Lee tells GlobeSt.com that the lender was “comfortable” providing the non-recourse loan.

“The land is located in a prime infill area, and the demand was easy to demonstrate to lenders who took the time to dig into this specific market,” he says. “The sponsor also purchased the property in 2011, a time where there was still hesitation from both buyers and debt sources when considering raw land acquisitions. As a result, their basis was relatively low compared to where it would be today. Furthermore, they did not require max leverage and their balance sheet demonstrated enough financial strength for the lender to only rely on a completion guarantee, and not recourse.”

In order to mitigate any concerns the lender might have regarding a cost overrun, George Smith Partners' client established a dedicated account with the lender, initially funded with 8% of the loan amount. The funds are available to use for any cost overrun, and will accumulate in an interest-bearing account. The funds are also refundable after the certificate of occupancy is obtained.

The loan is an indication that the housing market is back in a big way, Lee says. “We are now in the first or second inning of an incredible run in for-sale housing. The days of REOs and short sales are largely behind us, as demand for well-priced homes of $550K-$850K has dramatically picked up in the last 12 months. The flippers are now almost entirely institutionally backed, meaning they are making all-cash offers and driving up prices on each other.”

The condo market, which Lee terms “the bellwether for the housing industry,” is being ignited by the feeding frenzy for single-family homes. “People just generally want the yard and driveway that comes with a single-family home. But when prices of single-family homes shoot up, condos become a great option for people looking to enter the market. This particular project will be very well-served, as the price point for units will be between $700K-$800K, whereas homes in the area are trading for $1.1M and up. The faith is that the buyer pool is deep enough to absorb the units even with competition from true SFR homes.”

Overall, the housing activity indicates the economic arrows are pointing up, Lee says. “The boom in construction is very good for the economy and will lead to a strong resurgence throughout Los Angeles County. Los Angeles in particular needs construction jobs to keep unemployment down, and right now we are only running on two cylinders. Furthermore, once the SFR development market kicks in, you will see even more jobs created and more local consumer spending.”

Charles Tourtellotte, president of TAAG Investment Management, echoed Lee's sentiments. “The Southern California housing market is shifting,” he said in a statement. “For many years, the development community was focused on for-sale, green field development. Today, infill development in dense, centrally located areas is growing in popularity, a result of the Los Angeles population's growing desire to avoid lengthy daily commutes in and out of the City to employment.”

As previously reported by GlobeSt.com, construction on other townhome projects is underway in Silver Lake and in nearby Echo Park.