August 21, 2001

Commercial Mortgage:
Case Study: Seahurst Village

In an effort to provide "news you can use" on topics such as commercial morgages, I thought it might be interesting to dissect a recent transaction to illustrate a fairly creative financing vehicle structured by Steelhead Capital.

The borrower/client is Virtu Investments, a multifamily investment firm that identifies mismanaged and distressed properties in various markets throughout the country. They have been extremely successful in locating multifamily apartment communities that, with proper management and renovation upgrades, can be repositioned within a marketplace to perform at a market level. In this particular case, Virtu identified a 543-unit Class-C asset in a sub-market outside of Seattle, Washington. The property was on a local "watch" list for gang activity and drug trade (see article about the turnaround of this property.) Previous management attempted on many occasions to reposition the property, but ultimately were ready to trade out of the property for a less management-intensive investment. Initially, Virtu sought to obtain low-cost bond financing, but as time went on and the property's NOI continued to slip, it no longer qualified for the proposed bond financing. It was at this juncture that Steelhead Capital stepped in to structure the commercial mortgage and financing plan for the new owner.

The property, known as Seahurst Village, was under contract for $22.5mm, and Steelhead Capital was able to obtain a short-term, interest-only, floating rate loan for 80% of the purchase price, as well as 80% of the proposed $1.5mm rehab. We were also able to structure an additional $1.5mm earn-out to provide additional funds once the asset reached certain performance hurdles. Lastly, we negotiated with the lender to allow a Seller carry-back in the form of a non-interest bearing note in the amount of $1,200,000. In the end, we had managed to provide a financing structure totaling 90% of the overall transaction cost for the commercial mortgage services.

This was a highly structured financing and commercial mortgage program that allowed the borrower to leverage the property fully, provide renovation capital to complete needed repairs, and maximize investor returns. The existing commercial mortgage lender will ultimately step up to provide the take-out fixed rate financing once the property stabilizes. All of this was completed in 40 days after the property had been tied up in Bond financing for nearly a year. This story was a great success for the seller, buyer and for Steelhead Capital.

Mike Green, a principal of Virtu Investments, had this to say of the deal and commercial mortgage services, "We were ecstatic to obtain leverage that we thought could only be achieved through bond financing. Due to the previous delays in the transaction, we needed to close within 45 days to avoid losing control of the deal. Thank you Steelhead!"

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With an extensive lender and commercial mortgages network, Steelhead Capital has built its reputation on structuring commercial mortgages and commercial real estate loans requiring both debt and equity placement. Fluctuations in the capital commercial mortgages present significant challenges for investors and we are pleased to provide financing, as well as, guide and advise its clients through the process of obtaining commercial mortgages. Whether you are looking for apartment financing, commercial financing, commercial mortgages, or creative "out of the box" real estate loan alternatives, we can help.

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