Wexford Property Management is a multifamily management firm serving Philadelphia, its surrounding suburban counties, and the greater Washington, DC metro area. When the time came to refinance its two Washington, D.C. properties, the company’s chairman and president, Eric Kretschman, wanted to reduce debt service. He consulted Larry Paul, a director at Frankel Financial Corp, who suggested that Kretschman work with Beech Street.
FHA financing was a logical solution for Kretschman, but he never considered the option seriously—until Beech Street proposed it. Like most multifamily investors, Kretschman knew that rates on FHA finance are some of the best available anywhere. But like them, he was apprehensive about the due diligence that the FHA requires to ensure that borrowers and projects qualify for its programs.
Putting the FHA Option on the Table
“After considering the options, we recommended the HUD 223(f) program to Wexford,” says Brian Sykes, vice president of originations in Beech Street’s Boston office. “We felt that the advantages—the ability to size a loan with a 1.20x DSC at the actual rate, currently in the high 3 percent range, and a 35-year amortization schedule—were too good to pass up.”
Wexford’s two properties are located in a vibrant residential neighborhood in the heart of Washington. The first, Capital East Apartments, has 119 units, while Lexington Apartment has 48 units. Both apartments have undergone regular maintenance and upgrades over the years.
“When Beech Street suggested FHA, I had some reservations, particularly about timing,” Kretschman says. “But I was impressed by the competence of the Beech Street team. Without minimizing the amount of work involved, they were confident that they could get the job done within the agreed-upon timeline.” Working with HUD, Beech Street provided $14.9 million in financing for both properties with a term of 35 years and amortized over the same period, saving Kretschman 2.0 percent in interest for one of the loans and 2.5 percent interest on the other.
There were other significant advantages for Kretschman as well. Initially when the loan was signed up, it was set up as a cash neutral transaction. Thanks to its skills in navigating the HUD process, Beech Street was able to structure the deal during underwriting to enable Kretschman to obtain a higher loan amount. In turn, this allowed him to cash-out equity from the properties in addition to funding significant capital improvements.
Working with an Experienced Lender
At Beech Street, assembling expertise in FHA financing is a logical extension of our commitment to provide service that goes “above and beyond.” “We’ve built relationships with HUD offices around the country and attracted some of most experienced FHA lenders in the business,” says Grace Huebscher, Beech Street’s president and CEO. “It’s an area in which our drive, determination, and attention to detail can really make a difference for investors.”