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The Madison Group Arranged the $2,553,500 Loan for the Purchase of an Apartment Complex in Utah

Tags: apartment financing, apartment loans, multifamily loans, non recourse loans
Monday, Nov 06, 2017
by Barb

The Madison Group (TMG), a leading source of multifamily financing nationwide, arranged the $2,553,500 purchase of a 32-unit apartment complex in Taylorsville, Utah. The borrower’s goal was to maximize the amount of dollars available. TMG secured the financing with a FNMA 15-year fixed rate loan at 4.60% and a 30-year amortization.

The apartment complex, in a tucked away location south of Salt Lake City, consists of two 16-unit multi-plexes with 24 two-bedroom units and 8 three-bedroom units.  Residents generally pay a premium for these open townhome style units with upstairs bedrooms and basement garages. The townhomes feature light, open design with skylights, and each unit has a laundry room and three bathrooms. Attached garages have 14-foot and 21-foot deep parking spaces that allow one short and one long vehicle. Additionally 21 parking stalls are onsite. A condominium plat has already been recorded for the option of future condo conversion. Although the complex is in a secluded location, it offers quick access to freeways, the Salt Lake International Airport and shopping.

Owner managed units have kept great tenants but at very low rents. Unit square footage has been approximated in market study at 1,200 sq. ft. per two-bedroom unit and 1,450 sq. ft. per three-bedroom unit. The complex is located right off 5400 South with easy access to Bangerter Highway. Nearby shopping includes Jordan Landing, Smiths grocery and Walmart.

 “The borrower came to us to figure out a way to purchase the property with maximum leverage,” said Loan Officer Angela Kesselman.  “The challenge was that the rents were much below market, which restricted the cash flow on the project.  We typically underwrite multifamily at a 1.25:1 debt service coverage which did not qualify the property for a full loan amount.

 “This purchase is a long term hold for the buyer so we put them into a Fannie Mae 15-year loan with a 30-year amortization through FNMA financing.  This particular loan allows the borrower to pull cash out of the project once the project is at market rents.  They had the cash to close, but decided not to take the rate risk now, and instead lock in a low rate, 15-year fixed term on the purchase. They can advance additional funds as the debt service coverage increases over time, therefore hedging their long-term rate.

 This specific type of loan worked well for the borrower’s needs.  They were able to purchase a nice multifamily project that was in excellent condition and they locked into a great long-term rate on a property that had below market rents.  It should perform well for them moving forward,” said Kesselman, TMG’s Associate Director of Finance.

The financing was arranged by Angela Kesselman at The Madison Group.