Racquet Club Mezzanine Loan
Pillar originated two loans in November 2014 in connection with the Property: a mezzanine loan in the amount of $1,400,000 (the “Loan”) and a senior loan in the amount of $10,700,000 (the “Senior Loan”). The borrower used the proceeds of the Loan and the Senior Loan to acquire and fund certain improvements in Racquet Club Apartments, a multifamily apartment complex located in Lancaster, California. The acquisition price was $12,950,000.
The Loan is an interest-only loan that bears interest at 10.0% per annum and is due in full on December 6, 2019. The Loan is secured by a pledge of all of the borrower’s membership interest in the borrower on the Senior Loan.
Participation interests in the Loan are being offered in connection with this offering. The Senior Loan has been sold to a securitization trust, and neither Pillar nor any affiliate of Pillar has an ongoing interest in the Senior Loan.
Sponsorship: The Borrower principals (and their respective trusts) have extensive apartment ownership experience and strong financials.
Location: The Property is located immediately south of the Antelope Valley Hospital, which has more than 420 beds and 2,000 employees. There is also a side entrance to the hospital parcel from the Property. Further, the Property is located proximate to multiple major retailers and the Lancaster Auto Mall.
Submarket Occupancy: The market area and submarket indicate vacancy levels less than 6% and the comparable properties indicate occupancy levels from 95% to 98%.
Historical Property Occupancy: Based on information obtained from Costar, the Property’s annual occupancy has exceeded 92% since 2000 with the majority of years having an occupancy greater than 96%
Rental Rate Growth Potential: Rent levels at the Property as of loan closing were at the lower end of the competitive set, particularly two bedroom units which are larger than most of the comparable properties. This coupled with the $500,000 ($2,500/unit) in interior upgrades provides for upside rent potential at the Property.
Capital Improvement Budget: As part of the transaction, the Borrower will be implementing a $1,138,000 ($5,690/unit) capital improvement plan that includes interior and amenity upgrades.
Racquet Club Apartments is located at 44045 North 15 Street West in Lancaster, California (Los Angeles County) and consists of 200 apartment units within 32 buildings. The unit mix includes 88 one-bedroom units ranging from 562 to 752 square feet and 112 two bedroom units containing 1,080 square feet.
The Property was built in 1973/1974 and offers the following amenities:
- Two tennis courts that can also be used as a basketball court
- Fitness center
- Two swimming pools
- Two spas located proximate to the swimming pools
- Business center
Based on information obtained from Costar in connection with the origination of the Loan, the Property’s annual occupancy has exceeded 92% since 2000, with the majority of years greater than 96%. As of July 17, 2015, the Property was 93.5% occupied.
As part of the acquisition, $1,138,000 ($5,690/unit) was escrowed at closing to fund various property enhancements including interior upgrades ($500,000) and exterior painting ($110,000) that will provide for increased rent potential at the Property. This increased rent potential was not taken into consideration in the As Is underwriting.
Based on the aggregate loan amount of $12,100,000 and Pillar’s “As Is” underwriting methodology, the Loan equates to a 1.10x DSCR (based on the Senior Loan’s amortizing debt service) and a 7.32% debt yield. Based on the As Is appraised value of $13,600,000, the resulting As Is CLTV is 81% (Based on Net Funded Loan Amount). Further, the appraiser’s As Cured value of $16,400,000 results in an As Cured LTV of 74%.
Using Pillar’s stabilized underwriting, the Loan equates to a 1.38x DSCR (based on the Senior Loan’s amortizing debt service) and a 9.16% debt yield.
The Property is located along the western side of 15 Street West and is located immediately north of the Springs apartment community and immediately south of the Antelope Valley Hospital, a 420 bed hospital with more than 2,000 employees and declared as one of the 14 trauma centers in Los Angeles County. It is within walking distance to Sunnydale Elementary School and less than two miles from multiple schools, Home Depot Shopping Center, Wal-Mart Supercenter, Lancaster Auto Mall, Antelope Valley College and California State University Bakersfield. Further, it is located less than one mile east of SR-14, which is the main North|South thoroughfare that connects the Antelope Valley with Los Angeles.
MARKET – DEMOGRAPHICS
The total 2014 population estimate within 1-, 3-, and 5- mile radius of the Property is estimated to be 15,317; 98,844; and 169,188, respectively. Estimated median household income within the same radius is $38,657; $47,716; and $50,672, respectively. Demographics are forecasted to improve through at least 2019 with median household income increasing to $42,412; $52,827; and $55,484, respectively. Further, population is also forecasted to increase annually at 0.66%; 0.80%; and 0.81%, respectively.