Multifamily Lender Provides a Split Tranche Funding Structure

The sponsorship for 139-unit Bond Apartments in Redmond sought maximum loan proceeds during the recent purchase process. At the same time, it acquired a new asset at a desirable basis during its lease-up. COVID-19 slowed the leasing velocity and suppressed rental collections prior to closing which negatively impacted the loan sizing of conventional permanent lenders.

But in the end, Highland Realty Capital arranged permanent financing of $42.85 million for the Bond’s acquisition. Highland identified a lender that provided a split tranche A/B note funding structure, locking in the interest rate spread on day one, which will fund a B-note within six months after the close of escrow based on T-1 rent collections at that time.

This allows the sponsorship to get the property operating in line with pro forma expectations compared to temporary COVID-related declines during lease-up. The non-recourse permanent loan will be fixed for 10 years priced in the low-3 percent range, featuring four years of interest only, followed by a 30-year amortization.