Challenge
What do you do with a borrower who wants the best of both worlds? At Beech Street, we find a way to deliver! That’s what Patrick Cadigan discovered when he approached Beech Street to refinance one of his apartment complexes. Exclusively represented by the real estate investment firm Greenwood & McKenzie, Cadigan had two objectives: refinancing his property at the best possible rate while postponing closing to the last possible minute to minimize his prepayment penalty.
The property, Amberway Apartments, is located in a residential neighborhood of Orange County, California. Consisting of 272 units in 29 two-story buildings, the Amberway Apartments are well maintained. Its studios, one-bedroom, and two-bedroom garden units are spacious and compare favorably to the competition. Common amenities include garage and covered parking, a fitness center, large courtyards, five 24-hour laundry facilities, a swimming pool and spa. The occupancy rate at the time of application was 97 percent.
The borrower desired a $30.0 million loan to refinance existing debt of $23.3 million. The prepayment penalty represented a substantial portion of the difference. Accordingly, he was in no hurry to refinance the loan, but he was worried that interest rates would rise if he delayed refinancing any longer.
Solution
Beech Street suggested that working with Freddie Mac would be the best way to meet the borrower’s objectives. Freddie Mac was able to provide an extended early rate lock at a very competitive level, which allowed the borrower to rate lock right away. The loan closed 90 days later, reducing the prepayment penalty.
This transaction closed in November. In December, Freddie Mac introduced a number of enhancements to its early rate lock process that streamline the process even further. These include reducing the amount of information that the borrower must submit as part of the preliminary underwriting package, a change that has the added benefit of shortening the review process for Freddie Mac. Freddie Mac has also committed to reaching its early rate lock decision within two to five business days of receiving the complete preliminary underwriting package.
At Beech Street, we are constantly monitoring changes in agency procedures and assessing their implications for investors, so that we can choose the financing options that best meet our borrowers’ requirements. And if this sometimes means we can deliver the best of all worlds, so much the better!
