Changing the Strategy – A Different Loan Structure

Posted on Friday June 05, 2015 |

Our affiliate, FirstService Financial, Inc. (FFI), assists clients of FirstService Residential in fulfilling their financing requirements at the most competitive interest rates and terms available. FFI has facilitated or assisted in loan placements in excess of $1 billion for co-ops and condo associations.

This transaction illustrates why many of our clients participate in FFI’s programs, which provide added value based on the global purchasing power of our parent company, FirstService Corporation.

“FFI was able to tailor a loan product to meet our long-term objectives,” says Behzad Mansouri, 200 East 90th Street Owners Treasurer. “They listened to our needs, exceeded our customer service expectations, and ultimately secured a loan for us that removed our need to refinance again, while lowering the interest component of our mortgage.”
 

200 East 90th Street Owner Corp.
166-unit cooperative in Manhattan
 
Existing Situation:    
Original Mortgage:                  $8,300,000
Original Interest Rate:            5.91%
Original Amortization:             Interest Only
 
FFI and the co-op began initial refinance discussions in late 2013. The proactive board wanted to begin exploring options to lower their interest rate due to attractive market conditions. Over the next 18 months, FFI and the board discussed several different loan structures, but the board continued to fall back on the same reservation: paying the large prepayment penalty and rolling the costs into another balloon mortgage.
 
Given its fiduciary responsibility to the shareholders, and not wanting to jeopardize the financial condition of the building, the board did not want to increase the total debt load to the building just to lower the monthly payments and have a larger balloon payment to payoff in the future. Aware of this, FFI suggested a long-term self-amortizing loan, which would remove the balloon payment entirely and allow the board to lock the interest rate until the mortgage was fully paid off. The board agreed and instructed FFI to move forward.
 
FFI identified a bank willing to offer a fixed 30-year self-amortizing mortgage to the co-op. The board accepted the terms and instructed FFI to proceed with a formal application. Within two weeks, the loan was approved and a commitment letter was issued to the board. At the same time, FFI identified an insurance company that was offering the same 30-year self-amortizing loan product at a substantially lower interest rate.
 
Having the co-op’s best interest at heart, FFI brought this to the attention of the board with the recommendation to withdraw from the current loan and move forward with the insurance company. Although the closing costs would be approximately $100,000 higher, the board would save over $1 million in interest over the life of the loan. In addition, FFI negotiated a credit to the borrower for the deposit the board had submitted and lost from withdrawing from the loan with the bank.
 
The board elected to move forward and the loan closed within 60 days of submitting the application to the insurance company.
 
FFI Solution:
New Mortgage Amount:        $9,700,000
New Interest Rate:                 3.77%
Term:                                        30-Year Fixed
Amortization                            30-Year Self Amortizing
 
  • FFI locked in a rate of 3.77% on a 30-year fixed self amortizing loan;
  • Refinancing engaged a prepayment penalty of $1.1M, however, the penalty was absorbed into the new loan and the board would never have to refinance the primary mortgage again; 
  • FFI identified a more attractive loan product at a lower interest rate that will save the co-op over $1 million in interest during the term;
  • The new loan offers long-term budgeting stability, the removal of future expenses tied to balloon mortgage refinancing costs, and comfort knowing the rate is locked during the entire term and the board will not be subject to higher interest rates in the future; 
  • The entire process from application to closing took less than 60 days.
 
To learn how FFI’s programs may benefit your property, please contact Jordan Muchnick at 484-398-6042 or jmuchnick@firstservice.com.
 

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