ICO1 Investor Updates

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3Q24 ICO1 Investor Update

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2 Capital Call Updates below the video update. Click anywhere on the video to begin…

Due to the hurricanes in Florida, we received a Capital Call from the Sponsor (see capital call below). Ironton has arranged for a short-term loan to fund this, so you won’t need to send in a check to cover it.  When the investment returns capital, the loan will be paid off prior to any pay outs. While this capital call is already arranged, if you have interest in assisting in providing loans in future situations like this – if any – let us know.

Keep in mind that all of these refis cut the interest rate by approximately 30% – as example from 9.5% to 6.5% (each one varies) – which significantly helps the interest carry that has impacted these projects to date. As such, we are in support of the refis – even though require additional capital – because the interest burden is significantly lightened. Its identical to if you went to refi you house and the bank told you they could get you a much better interest rate on the new if you could come up with $10-15K to pay down the balance + cover the loan closing costs.

1st Capital Call, Elements on Third (LURIN Equity Partners XLII, LLC)

Refinancing & Capital Call

Elements on Third’s existing debt structure expires on December 6th, 2024, which is one month past its original maturity date of November 6th, 2024, as LURIN was able to negotiate a one-month extension with the existing lender. In addition, LURIN has secured a refinancing solution that is set to close on or before the above maturity date, which is further described below.

Over the past 10 months, LURIN has been working on securing a refinancing solution for the asset. There were many challenges along the way, specifically centered around capital markets rather than asset specific issues, and the process was far more difficult and took significantly longer than originally anticipated. Although the capital markets have become more accessible through the course of 2024, they remain restrictive. Lenders, both agency and bridge, have increasingly tightened their debt yield requirements (i.e., moved debt yield higher), despite the tightening cycle concluding and a new easing cycle beginning. In addition, post the first rate cut by the Federal Reserve, the belly of the yield curve (2 to 10 year) experienced significant steepening and increased 50 to 75 bps across the curve from the lows. All of these factors have led to a challenging environment to refinance the asset from a capital markets perspective.

In addition, in late September and mid-October, the asset was hit by two hurricanes, Helene and Milton, both of which caused damage to the property. Milton had the most impact on the asset, damaging the roofs on Sea Glass Tower and requiring a full replacement. The damage to the asset did not meet the minimum deductible and will be in excess of $1.3M. LURIN has begun the restoration process and expects the restoration to be complete in January 2025.

Despite the above, the asset has had strong operational and financial performance, with occupancy at approximately 90% and achieving approximately 90% of underwritten proforma rent. This has allowed us to secure a refinancing solution that addresses the upcoming debt maturity, lowers the cost of capital, and provides a debt solution to allow for the asset to be fully monetized. Unfortunately, the refinancing solution requires a cash-in solution. Although the asset received capital in early 2024, the extended timeframe needed to find a debt solution, the tighter capital markets and impacts from the two hurricanes all culminated in the need for additional capital to refinance the asset.

Debt Details

Existing Debt Structure:

• Varde Loan: $115,000,000 (3Yr + 1Yr + 1Yr / SOFR + 395bps / Floating)
• Cost of Debt: 9.2%
• Maturity Date: December 6th, 2025

New Debt Structure:

• Bridge Debt Strategies Loan: $95,000,000 (2Yr / 4.79% / Fixed)
• Smith Hill Pref: $25,000,000 (2Yr / SOFR + 900bps / Floating)
• Blended Cost of Debt: 6.9%
• Maturity Date: December 6, 2026
• New Debt Service Reduction: ~$4M annually

Financial Snapshot

As mentioned, the above refinancing will require a capital call to fill the gap between the existing and new debt structures.

Sources & Uses

(1) CC & CC = Closing Costs & Carry Costs includes but not limited to exit fees, buy down fees, legal fees, debt service reserves, interest rate caps, title & insurance, etc.

The refinancing solution for Elements on Third requires the purchase of an interest rate cap and the creation of a debt service reserve for the 1^st lien and preferred at closing. As such, the dollars needed to close are greater, but it also means all debt requirements for the asset are covered for the next 2 years.

Capital Call

As outlined in the Sources & Uses above, the asset requires ~$6.0M of additional capital to close the above refinancing. LURIN is calling $7.0M, or ~22%, of total equity capital, and we request funding by December 5^th, 2024. 

2nd Capital Call, Westshore Palms (LURIN Equity Partners LII, LLC) 

REFINANCING & CAPITAL CALL

Westshore Palms existing debt structure matures in February 2025. Given the strong operational and financial performance of the asset, with occupancy at approximately 92% and achieving approximately 88% of underwritten proforma rent, we have secured a refinancing solution that addresses the existing debt obligations and the upcoming debt maturity in 2025, while also significantly lowering the cost of capital and providing a longer duration debt structure (five- year term if needed).

While capital markets have become more accessible over the back half of 2024, lending requirements are still fairly restrictive and the recent widening in mid to longer-term rates has unfortunately changed this from what was originally planned to be a cash neutral refinancing to a cash-in refinancing. The asset is under application with Freddie Mac for a 1st lien loan and Mirasol Partners for a preferred equity replacement with a close in early to mid-December 2024.

Debt Details

Existing Debt Structure:

• Acore Loan: $36,593,907 (3Yr + 1Yr + 1Yr / SOFR + 375bps / Floating)
• Blended Cost of Debt: 9.1%
• Maturity Date: February 18, 2025

New Debt Structure:

• Freddie Mac Loan: $30,600,000 (5Yr / 4.79% / Fixed)
• Mirasol Pref: $6,000,000 (5Yr / SOFR + 900bps / Floating)
• Blended Cost of Debt: 6.1%
• Maturity Date: December 15, 2029
• New Debt Service Reduction: ~$1.1M annually

Financial Snapshot

*The above refinancing will require a capital call to fill the gap between the existing and new debt structures.

Sources & Uses

1. CC & CC = Closing Costs & Carry Costs includes but not limited to exit fees, buy down fees, legal fees, debt service reserves, interest rate caps, title & insurance, etc.

Capital Call

As outlined in the Sources & Uses above, the asset requires $2.1M of additional capital to close the above the refinancing. LURIN is calling $3.1M, or 25%, of the originally committed equity capital, and we request funding by December 6th, 2024.