Our Toughest Deal Refinances to Agency - 3 years in the making

This was the most difficult project in our career, and I’m proud of this story of perseverance and ultimately preservation of capital. In a time where there is much negativity towards Syndications and multifamily, this story hopefully gives hope to the operators out there doing the right thing, giving every bit of smarts and execution to protect capital.

This story is a save. I don’t know many other operators that would have been able to pull off what we did and the challenges we faced, how we survived and thrived. Our strength as GP guarantors at Sharpline, our track-record, our relationships with Freddie and Fannie were the key.

It’s a testament to Sharpline and the commitment of our team as well as the patience and belief from our investors. I want this post to be a reality check and not considered bragadocious but give homage to the people in Sharpline and the many partners (lenders, vendors, consultants, investors) that helped get this insurmountable project to where it is today.

Here we go.

3 years ago we bought this as a heavy value-add post covid. We couldn’t get new roofs that were leaking for 7 months, so this inhibited our reposition to improve the property, which kept some of the bad elements at the community there longer than we wanted.

Fire property management company 1 , Fire property management company 2 (proverbial jump out frying pan into the fire, scary). Decided to self-manage project. This was in an early stage of our self-management journey about 2 years ago (we now self-manage 1500+ units).

We purchase one half of the project with cash and the other with a bridge loan with floating rate debt (our only floating rate Sharpline has ever done, we didn’t buy a rate cap either, not smart) 4% bridge loan. We begin to execute capex plan successfully (we ripped the mansards off #MansardSlayer).

The process of reposition took longer than we liked because of construction delays and bad PM companies, but we ultimately had the safety net of the 24 unit townhouse project that was getting higher occupancy that we purchased with cash as part of the syndication. So we refi’d the 24 unit with a local bank and GPs personally guaranteed the loan as we continued to do projects. This allowed us to free up liquid capital to continue executing to get higher occupancy, but we were still not there yet. We were at 65% overall occupancy on 128 units and the community was improving.

Our Bridge loan on the 104 unit part of the project fixed rate period ends and the floating rate goes active, we know what happens next, it goes to 9% , no rate cap. Eeeeeeek.

Now 6 months from then, the loan is coming due (gross , puke). We go to 40 banks and need the worst thing you can have in multifamily: we need Bridge to Bridge lending. Our occupancy was not there for agency debt and we needed another 1MM to get what we felt would be the needs of the property to get to 90% for 3-6 months so we could get to agency debt.

Go to 40 banks > We don't sleep for 6 months > One bank left at the end, LIMA One > there’s a kicker 10.83% rate eeek, but they will pop out both loans and give us another 1MM in capex much needed, but they are hesitant > all guarantors believe in ourselves we offer to personally guarantee the loan > LIMA accepts, does the loan. Holy cow, now we need to get it to 90%+ occupancy and fully execute to agency or we are toast when that loan comes to term.

Sharpline Communities in-house PM brings to 95% occupancy in 12 months.

Begin agency non-recourse refi 4 months ago.

Occupancy climbs > 97% we get more proceeds.

Rates begin to go up again, eeek again omg > Lock rate 5.58% > Agency delays in October > nerves build > Final close yesterday.

Save 19k a month on debt payments now.

Enough money in reserves for comfort for hold of property since massive capex has been completed and occupancy is high.

We will begin investor distributions for the first time in 3 years.

We did what we said we would do as our mentor taught us “Your number 1 job is to preserve capital”.

I want to thank Ben Weddington at CBRE, our trusted friend and partner for setting up all 3 loans on this project, Bridge to Bridge to Agency. I want to thank Matt at LIMA One. We would have not gotten through this without LIMA One. We did 3 other deals with LIMA after this for purchases on great deals because of this one.

We have many successful projects now, but this one is a save, and it's a story worth telling.

My final words on this project are thank you to our investors for believing in us, many have continued to invest with us despite this. We thank you.

To my fellow partners and Guarantors that looked at me without hesitation on the bridge to bridge on a troubled project to personally guarantee a loan to get us out of hell but still not at non-recourse agency yet until now. I thank you for your belief in me and the Sharpline team.

To the GPs and Sponsors out there in multifamily land having a real tough time but are doing the right thing for their investors:

“If you’re going through hell, keep going.”

“Never, never , never give up”

Winston Churchill

Finally thank you to the Sharpline Communities team, our self management company. Unbelievable execution at the highest level. Elite level commitment and delivery. Unreal pride I feel.

https://www.SharplineEquity.com

https://www.SharplineCommunities.com

#multifamilyinvesting #apartmentinvesting #commercialrealestate #realestateinvesting

4 comments