Boca Raton, FL, July 18, 2017: QuickLiquidity, a leading real estate private equity firm providing equity recapitalizations and subordinated debt on commercial real estate, has announced that it has purchased a $1.9 million second mortgage on a 188-unit apartment community in Phoenix, AZ.
The property was purchased by the borrower in 2015 and has since undergone extensive renovations, with a focus on sustainable living. When the property was purchased, half of the down payment required by the first mortgage lender was invested by the seller of the property in the form of a second mortgage. The second mortgage included an option for the second mortgage lender to convert their debt to half of the property’s equity, but only at the disposition of the property.
Over the past two years substantial renovations were made to the entire property, allowing the borrower to bring in stronger tenants and raise the rents by nearly 50%. This increased the property’s income and therefore the property value significantly grew. Some of the renovations to the property include complete interior and exterior renovations of all units, a remodeled leasing office, a new roof, new heating, ventilation and air conditioning, new asphalt and installing LED lighting throughout the entire property reducing the lighting-related energy consumption by around 85%. The borrower still has around 20% of the planned renovations left to complete.
In order for the second mortgage lender to convert their debt to equity and monetize the gains of the significantly increased property value, they would have to wait for the property’s remaining renovations to be completed, the occupancy increased, and for the property to be marketed and sold. This is estimated to take an additional year. However, the second mortgage lender had already been invested in the property for many years and preferred an early exit from the investment.
The borrower saw this as an opportunity to bring in a new capital partner to replace the existing second mortgage lender. The borrower wanted to have the mortgage modified to a higher interest rate in exchange for removing the equity conversion option. This would allow the borrower to remain the sole equity owner and receive all of the increased property value, potentially doubling their profit.
QuickLiquidity worked with the borrower to purchase the existing second mortgage and modify the terms to remove the equity conversion option while extending the maturity date. This gives the borrower ample time to complete their renovations, increase the occupancy, and then either refinance or sell the property.
“With the borrower choosing us as a capital partner, the second mortgage lender was able to get the early exit strategy they were seeking while the borrower was able to remove the equity conversion option. This allowed the borrower to retain complete ownership of the property, potentially doubling their profit”, said A. Yoni Miller, Principal of QuickLiquidity. “We’re an experienced and discrete investor with the necessary resources to close complicated transactions in a fair and timely manner”.
The apartment community is comprised of ten buildings in a high density setting, with a five-mile radius population of over 425,000. It's centrally located in the Uptown Phoenix rental submarket. Over the past 24 months, tremendous job growth has been the catalyst for the resurgence of the Phoenix rental submarkets. This rental demand has produced historically low vacancy rates along with increasing rental rates.
