Sims Mortgage Funding quickly got off to a good started for 2014 when it closed in January a $13,360,000 FHA-insured loan for The Grove at Pleasant Valley, a market-rate multifamily apartment community located in Little Rock, AR. The Grove was constructed in 1996 and consists of fifteen 2 and 3 story walk-up buildings containing 225 units. There are 105 one-bedroom units; 90 two-bedroom units; and, 30 three-bedroom units. The property also includes a clubhouse/leasing office and on-site fitness and laundry centers. Vintage Realty Company of Shreveport, LA, acquired the Grove in 2003. Vintage is a major regional multifamily housing developer, property manager and commercial real estate broker; it has been a Sims client since 2001. We have closed over a dozen FHA-insured loans for the company.
Our application for mortgage insurance had been filed in September. The government shutdown the following month brought FHA’s operations to a virtual standstill for about three weeks. When FHA resumed full activity, there were significant delays and bottlenecks in the approval of pending transactions; as a result, we could not obtain the Firm Commitment in time to close before the existing debt’s maturity date. That loan had a 10-year term with a balloon payment due in November 2013.
Once it was clear that the existing loan would not be paid off by its maturity date, Vintage and the existing lender, one of the nation’s largest commercial real estate finance companies, commenced discussions for a short-term extension. As part of this process, the commercial lender relied on our assessments of the status of the FHA review process, and on our projections of when FHA would likely approve the refinancing loan. The lender ultimately agreed to a short-term extension of their loan through the end of December. FHA issued the Firm Commitment in early December as we had estimated, and with that approval in hand, the lender agreed to pro-rate another extension through the January closing date. We closed the insured loan less than 50 days after FHA issued the Firm Commitment.
The refinancing loan features a 35-year, fully amortizing term and is insured under the Section 223(f) program. The application was processed locally by the Little Rock HUD Office through the Multifamily Accelerated Processing (MAP) program in approximately 75 days. Proceeds from the insured loan, which was underwritten at 80% of fair market value, prepaid the existing debt and related extension costs, funded $1,300,000 in reserve for replacements, covered all FHA fees and closing costs, and provided some cash-out to the borrower. The interest rate on the FHA-insured loan is less than 4%, approximately 28% lower than the rate on the prior loan.
The Section 223(f) program insures loans for the purchase or acquisition of existing multifamily rental housing. In order to be eligible, a property must be at least three years old and not require substantial rehabilitation. When Section 223(f) loans are underwritten at 80% of fair market value, it’s often possible to provide borrowers with an equity take-out.
For additional information about the Grove at Pleasant Valley refinancing or the Section 223(f) program, please contact us.