Borrower Dynamic & Transaction Overview

The sponsor is a growing real estate private investment firm with a property portfolio spanning the Southeast corridor. They had primarily grown the portfolio with traditional recourse bank debt but saw the opportunity to grow into a more institutional borrower given their now-developed track record. With knowledge of how challenging an Agency process can be for first-time Agency borrowers, the sponsors selected Fulcrum to guide them through the approval process. The transaction represented a seminal moment for the firm as it would show the sponsor’s ability to scale their investment platform with their largest purchase to date.

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‍Market Overview

The property is located in Pickens County, South Carolina. Strong employment and limited affordable housing supply contributed to strong economic tailwinds resulting in low vacancy rates and high rental growth rates, which beat national and regional averages of comparable markets.

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‍Business Plan

The sponsor sought to upgrade units as tenants naturally rolled over to keep the property cash flowing. Upon renovation, the sponsor could achieve premiums of over 15 percent. In addition to the substantial upside supported by in-place renovated rents and market comparables, the sponsor purchased the property substantially below replacement cost and of comparable recent transactions in the market as the seller was in distress and needed a quick transaction.

The Fallout 

Although Fulcrum was successful in gaining approval for the sponsor to be admitted into the Agency Program, the occupancy of the property fell below the statutory requirement of 90 percent minimum occupancy for at least 90 days. This resulted in reduced leverage of 10 percent and a higher interest rate of nearly 70 basis points to the sponsor. This last-minute change threw the transaction upside down and forced the sponsors to pivot from an Agency execution.

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‍The Solution

Fulcrum understood the stakes of the transaction for the sponsor as well as the market and transaction dynamics. Fulcrum moved quickly to provide the sponsors with executable transaction terms that would maintain an accretive level of financing for the acquisition. Fulcrum was able to salvage the transaction by providing a bespoke solution which required a custom prepayment, increased interest-only period, and reduced escrows for tax and insurance. Fulcrum was also able to navigate a last-minute mechanics lien on the property as well as assist in renegotiating a reduced sale price from the seller.

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The Take Away

No matter how much capital, experience, data, and technology one has at their disposal, unforeseen circumstances will arise. Luckily, our data and technology were able to help us expedite the underwriting and diligence process so we could spend more time analyzing the unique aspects of the deal and quickly make a decision to fund the purchase ourselves. Flexibility in process and creativity in solutions were crucial in helping our client not only salvage the transaction but demonstrate to the market their ability to navigate through a volatile interest rate environment and complex transaction.

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Our Clients Say It Best

“Closing a transaction of this size with the current market conditions does not happen without a remarkable team….The recent interest hikes have posed many challenges to transacting multifamily assets. Our lender, Fulcrum Lending, did an incredible job of navigating through these challenges and getting the deal to the closing table. Identifying the right lender was critical during this turbulent market of opportunity.”

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