Power Plaza Center
$3,500,000 Retail Loan from Life Insurance Company
Pasha Johnson and Trevan Swierczewski of PSRS arranged a loan assumption and top-off totaling $3,500,000 in financing for the acquisition of a 40,000 SF retail property in Mesa, AZ. Financed with one of our correspondent life insurance companies, PSRS provided its borrower with a fully amortizing loan. The loan assumption allowed the buyer to benefit from the seller’s in-place loan priced in the mid-3’s. To accommodate the asset’s appreciation, the lender funded a top off bringing the total leverage up to the original LTV.
This transaction is a great case study for creative financing in a rising rate environment. The seller’s in-place loan was locked at 3.5% for the next five years. Most life insurance company lenders will allow a buyer to assume the in-place loan so long they are qualified. This allows the buyer to capitalize on the aggressive rates of yesteryear.
The issue that buyers run into on loan assumptions is leverage. Let’s assume that the original loan balance was 65% LTV. If property values rose 30% since the original loan was placed, the new buyer would be looking at a 50% LTV acquisition loan (less if the loan was amortizing).
In order to fill the gap in the capital stack, the in-place lender agreed to a “top off” in which they brought the loan balance back up to 65% of current value by placing a second trust deed behind their own first. The second trust deed was priced at today’s rates but because it is a relatively small dollar amount compared to the first, the buyer’s weighted interest rate is in the high 3%’s.
Our firm was able to facilitate the assumption and top off with relative ease because we already serviced the loan.