PHOENIX-The buyers of the 98-unit Silver Tree Apartments agreed to assume the property's $1.6 million loan for one reason: its low interest rate. Investors Ambrosie & Susana Halmagean of Litchfield Park AZ found that the interest rate on the 1980s complex was lower than the available debt on the market.
According to Alon Shnitzer with Orion Multifamily Group, the $2.9 million Silver Tree Apartments transaction is representative of a potential trend, that of more assumable loans coming to market as debt becomes more expensive. "Interest rates since early May 2013 have increased approximately 100 basis points," he tells GlobeSt.com. "With recent interest rate and lender spread increases, debt has become more expensive."
Shnitzer, along with Orion colleagues Eddie Chang, John Kobierowski, Rue Bax and Doug Lazovick, negotiated the transaction between the buyer and seller, KR Capital LLC of Calabasas, CA. "The interest market rates right now are around 5% for many of the new loans," Shnitzer points out. "If you placed a loan on a property even a year ago, you'd find interest rates in the low 3%-4% range."
The original loan on Silver Tree Apartments, located at 4336 N. 35th Ave., was actually placed in 2006, when it was purchased by another seller from MVG Investments for $5.6 million. The loan itself was $3.8 million. When KR Capital acquired the property in 2010 for $1.8 million, the lender wrote down the debt to allow the loan's assumption. During the process, the interest rate was also lowered to what was then the standard; around 3%. Even more interesting is that the loan doesn't mature until 2026. "Those types of loans don't exist any more," Kobierowski observes.
Kobierowski also tells GlobeSt.com that the potential trend of assumptions could be a value selling point in a transaction, so long as the loan isn't difficult to take over. "Buyers ending up with a 3.5% loan will end up with actual value in the property," he adds.
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