FFI Enhances Fiscal Status of Silver Towers through Creative Financing
This recent transaction illustrates why many of our clients choose to participate in FFI’s programs, which provide added value based on the global purchasing power of our parent company, FirstService Corporation.
“FirstService Financial proactively reviewed the status of our existing debt and made a recommendation that enhanced our financial position long term,” says David Stern, Treasurer of Silver Towers Owners Corp. “Their professional guidance throughout the process, lending expertise, and extensive track record was a fantastic benefit offered through FirstService Residential as our management company.”
Silver Towers, a 377-unit cooperative in Kew Gardens, was four years into their existing interest-only fixed mortgage. The co-op was not considering refinancing since their existing debt was not maturing and their interest rate was locked at 4.25%.
The co-op was well maintained and financially sound with no need of additional capital. The structure of Silver Towers' initial loan included a fixed seven-year term with a rate reset thereafter for the remaining five years.
Recognizing looming risk and an opportunity that could benefit the co-op, FFI approached the building’s FirstService Residential management team.
The rate was scheduled to reset in three years and the existing prepayment penalty was set to reduce from 4% to 3%. After careful analysis, FFI identified that the cost savings from a lower interest rate would far outweigh the prepayment penalty cost. The board could also remove all of the risk with the rate reset by securing a new long-term fixed mortgage.
When presented to the board, they unanimously agreed with the recommendation and instructed FFI to move forward.
FFI conducted a thorough bid process, secured numerous term sheets from different lenders, and negotiated an aggressive 10-year interest-only fixed mortgage at 3.75%. The chosen lender was able to lock the interest rate at application and provide the borrower with a 90 day window to close the loan. This removed any risk with rising treasury markets during loan underwriting and gave the borrower enough time to close the loan and take advantage of the reduced prepayment penalty.
The final loan terms reduced the co-op’s annual debt cost by over $47,000 and pushed the loan maturity from 2021 to the end of 2025. This gave Silver Towers four additional years of security and the ability to budget long term for their debt cost. The loan successfully closed within 90 days of application and the board was thrilled with the service.
- FFI locked in a rate of 3.75% on a 10-year fixed, interest only mortgage
- The Silver Towers board paid the prepayment penalty and closing costs out of reserves to avoid increasing the final loan amount
- The co-op was able to reduce their annual debt cost by over $47,000 per year, far exceeding the prepayment penalty
- The new loan extends the debt maturity through 2025, thereby increasing security and the ability to budget long term
- The entire process from application to closing took less than 90 days