NDF5 Investor Updates
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3Q24 NDF5 Investor Update
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. The second capital call is a refinance. 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, The Morgan (fka Park at Treviso)
As you know, the property was impacted by Hurricane Helene and Milton. Unfortunately, the hurricanes not only impacted the asset physically, but they also impacted the plans for the asset as it relates to its debt structure. We were actively seeking a refinancing solution or a potential sale of the asset prior to the storms. We received an executable refinancing term sheet and had started marketing the asset for sale in September.
Unfortunately, the asset was hit by both hurricanes, and the property requires extensive restorations following the storms, leading the new lender to pull the term sheet. LURIN also determined that selling the asset while physically impaired post hurricane would not result in a favorable outcome for investors or the existing lender. As such, we have worked out an agreement with the existing lender to provide additional time to find a refinancing solution post the restoration of the asset to correspond to the timeline laid out in the Refinancing section below. To facilitate the modification with the lender, LURIN and Jon P. Venetos were required to provide several financial guarantees to bridge the asset, as well as completion guarantees regarding the restoration of the property from the hurricanes.
Summary of Hurricane Damage:
- 95% of roofs damaged requiring full replacement
- Extensive gutter damage
- Sofit and facia damage
- Patio fencing damage
- Perimeter fencing damage
- Main and secondary pool damage
- Extensive tree and landscaping damage
- Interior unit damage (40 units with minor to moderate water intrusion)
Restoration Plan:
- Full roof replacement
- Full gutter replacement
- Patio fencing repairs
- Pool repairs (main & secondary)
- Perimeter fencing repairs
- Tree & landscape clean-up
- Interior restoration (40 units require moister remediation, minor to moderate patching, flooring replacement and full paint)
Estimated Total Cost of Restoration: ~$2,100,000
Estimated Time to Complete Restoration: 6 to 9 weeks
Insurance
The property is fully covered from an insurance perspective. The coverage line items that would have covered the damage are related to “Named Florida Hurricane Storms”, which is a per occurrence coverage limit of $50,000,000 with a deductible of 5% of Total Insured Value (“TIV”) of the property. The TIV for The Morgan is $44,053,847, making the deductible $2,202,692 before insurance coverage begins. This means the property is responsible for all restoration costs from $0 to $2,202,692. As such, there is a capital requirement to restore the property, and we are calling capital to cover this requirement. For your reference, deductible ranges in the Florida Named Wind Storm market are between 3 and 15% of Total Insured Value (“TIV”).
Capital Call
As outlined above, the asset requires ~$2.1M of additional capital to restore the asset post the Helene and Milton hurricanes. LURIN is calling $3M, or 15%, of total equity capital, and we request funding by December 12th, 2024.
Refinancing
Post the restoration of the asset, the goal is to refinance the asset. We have engaged JLL as a debt broker to identify refinancing solutions. The initial feedback has been positive, and we expect to have a new executable term sheet in January with a target closing in March. Given the current debt market conditions, it is most likely that a new debt solution will be a loan from a bridge lender or a loan from an agency lender with a preferred layer. At this point, it is too early to know if the refinancing will be cash neutral or will require additional capital. We will have a better sense once we get through the first phase of the debt marketing with JLL and we will provide an update then (which should be in late December/early January).
2nd Capital Call, The Atrium (LURIN Equity Partners LXVII, LLC)
REFINANCING & CAPITAL CALL
The Atrium’s existing debt structure requires a new interest rate cap and a replenishment of the debt service reserve in December 2024. Given the strong operational and financial performance of the asset, with occupancy at approximately 92% and achieving approximately 70% of underwritten proforma rent, we have secured a refinancing solution that addresses the two above requirements 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 NY Mortgage Trust for a preferred equity replacement with a close in early to mid-December 2024.
Debt Details
Existing Debt Structure:
- SoundPoint: $22,290,000 (3Yr + 1Yr + 1Yr / SOFR + 390bps / Floating)
- Blended Cost of Debt: 9.0%
- Maturity Date: December 9, 2025
New Debt Structure:
- Freddie Mac Loan: $19,500,000 (5Yr / 4.79% / Fixed)
- NYMT Pref: $4,100,000 (5Yr / SOFR + 900bps / Floating)
- Blended Cost of Debt: 6.2%
- Maturity Date: December 15, 2029
- New Debt Service Reduction: ~$0.5M annually
Financial Snapshot
| Income |
3Q24 |
Forward 12 Months |
| Effective Gross Income |
$601,115 |
$2,540,904 |
| Total Operating Expenses |
$258,018 |
$854,171 |
| Net Operating Income |
$343,097 |
$1,686,733 |
| Existing Debt Service Excl Int Rate Cap |
$525,847 |
$2,003,871 |
| Net Cash After Debt Service |
($182,750) |
($371,138) |
| Estimated New Debt Service |
$367,263 |
$1,469,050 |
| Estimated Net Cash After Debt Service |
($24,166) |
$217,683 |
*The above refinancing will require a capital call to fill the gap between the existing and new debt structures.
Sources & Uses
| Sources | Uses | ||
| Freddie Loan | $19,500,000 | Sound Point Loan | $22,290,000 |
| NYMT Pref | $4,100,000 | CC & CC1 | $2,320,000 |
| New Capital | $1,010,000 | ||
| Total | $24,610,000 | Total | $24,610,000 |
(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 $1.0M of additional capital to close the above the refinancing. LURIN is calling $1.5M, or 12.5%, of the current committed equity capital, and we request funding by December 6th, 2024.