I recently spoke with a Principal at a family office and he mentioned that it's not uncommon to refi almost all or at least close to the equity outlay put into a deal on his ground-up MF deals. How common is this? I am not well versed in ground up at all
I wasn't aware that it was common to convert to perm loans with so much of the equity returned back
It can't happen all the time. The deal would have to perform very well. For example, developer builds a building for $10 million with 65% LTV (its lower since its construction). They put up $3.5 million. In order for them to get their equity back through refi, the property would have to be worth more than $13 million at stabilization in order get their money back at which point they can get a 75% LTV loan to cash out. So essentially value has to increase 30%+ in order for it to happen. Most deals I am seeing now are penciling absolute returns pretty thin and rarely see a 30% total bump on price over construction costs, but maybe its just me and granted construction is super expensive now.
I work at a debt fund and I see deals like this fairly often.
Property is newly constructed and in lease-up still, Sponsor wants to take out their construction lender + mezz/pref and return some equity, permanent debt can't get them there yet, we will come in and do 90 - 100% LTC financing on the deal and bridge it to when its 100% leased/free rent is burned off and they get a permanent takeout. Likely would price in the L + 250 - 300 range (have seen it go tighter lately).