Ardsley Tenants Corporation, a 198 unit co-op, had an existing first mortgage maturing January 1, 2018 with a principal balance of approximately $12 million.
Our affiliate, FirstService Financial, and the board had been discussing the building’s debt structure over the last several years. While the board wanted to take advantage of historically low interest rates in 2015 and 2016, FirstService Financial determined the existing yield maintenance prepayment penalty was cost prohibitive at that time.
Approaching 2017, with the prepayment penalty significantly reduced and given the impending presidential election and national and international turmoil, the board was concerned with where financial markets and interest rates were heading.
Understanding the board’s concerns and long-term debt preference, and factoring in the building’s financial needs, FirstService Financial provided several options for consideration, including interest only loans, 30-40 year amortizing loans, and hybrid structures.
The board elected to refinance on a 15-year fixed term. The first two years are interest only; the loan converts to a 30-year amortization structure in years 3 through 15.
- Original First Mortgage: $14,000,000
- Outstanding Balance: $12,000,000
- Line of Credit: $2,000,000
- Interest Rate: 5.85%
The transaction arranged by FirstService Financial resulted in these additional benefits for the co-op:
- Locked in 4.22% rate on $12,900,000, 15-year fixed mortgage, incorporating a six-month forward rate lock to reduce risking material changes in market conditions.
- Reduces annual debt cost by 23%.
- New loan absorbed all closing costs and prepayment penalties and provided approximately $500,000 in net proceeds to immediately increase cash reserves.
- Ability to increase reserves by $425,000 per year over the next two years from reduction in annual debt service costs, with a potential for a total of $1.35 million subject to unanticipated capital requirements.
- Principal reduction payments lowers debt obligation for future shareholders at maturity in 2032.
- Closed when the prepayment penalty converted from an expensive yield maintenance to a one percent fixed penalty.
- Replaced old line of credit with a new $2,000,000 line that can be used throughout the term for capital needs.
- Extends debt maturity through 2032 increasing security and ability to budget long term.
- Over 15 years, the co-op will pay off approximately $3.2 million in principal, reducing the principal balance by 25%.
“FirstService Financial’s proactive suggestions and feedback over the last three years allowed us to accurately gauge the most appropriate time to move forward with refinancing our existing debt,” said Steve Martin, Ardsley treasurer. “Their professional guidance throughout the process, lending expertise, and extensive track record was a fantastic benefit offered through FirstService Residential as our management company.”
Can FirstService Financial’s programs benefit your property? Contact Jordan Muchnick at jmuchnick@ firstservice.com or (484) 398-6042 to find out.
FirstService Financial assists our clients in fulfilling their financing requirements at the most competitive interest rates and terms available. The company has facilitated or assisted in loan placements in excess of $1.5 billion for our co-ops and condos. This transaction illustrates why many of our clients choose to participate in FirstService Financial’s programs, which provide added value based on the global purchasing power of our parent company, FirstService Corporation.