This section outlines the schematics of the debt financing placed on the property acquired and what is required of the Member and other expectations.
Berkadia is YH principal lender and has the deal underwritten in a few days and presented to Agency Debt (Fannie Mae and Freddie Mac). It is YH intent to pursue Agency Debt for the follow reasons:
- Short closings. The application process is streamlined and can be closed within 45 to 60 days.
- Lower legal costs. Agency loans charge about ½ the legal costs of a comparative conduit loan for loans over $5 million.
- Superior terms for the YH investment group. YH typically applies for a 10 to 12-year term and request the 1st 2-3 years of interest only where the investment group is funding 25% down. Up to 5 years interest only can be obtained if the investment group funds 35% down with other criteria being met (property economics, submarket considerations, and loan to value ratios).
- Flexibility to add debt for rehabs. An interim bridge loan (2 to 3-year term with up to 80% of purchase price and rehab costs) can be secured if elected.
- Quick assumption period during disposition. Usually only about 3 months for Agency debt. Assists in the selling process
- YH has established a long-term relationship with Fannie Mae. Lenders base their approvals on financial strength, credibility, and track record of the Key Principal and Managing Member (YH). This is a big advantage in the streamlined process outlined.
The other main type of debt is a conduit loan. These have more competitive LTV (i.e. less down payment and therefore more leverage) than Agency debt. YH is NOT actively pursuing high leverage acquisitions due to higher operational risks. Conduit assumptions can take 6-9 months, a handicap when selling the property. Legal and 3rd party reports routinely run over double what Agency debt costs on a $5 million loan- these enhanced costs are hard for a smaller property to amortize.
All Members must be accredited. This is a passive investment with all the key operational and management components set in place by directly overseen by YH. YH receives a 20% equity position in each property acquisition for this and securing/guaranteeing the property loan. We seek Members in the $250,000 to $500,000+ range. A Member is not required to provide financials to the lender unless they own greater than 20% interest in the venture.
YH prefers to work with fewer Members in each transaction for the prototype property pursued and by posting higher equity (down payment) this translates into the Member investment range requested. Management sends out periodic reports (monthly to at least quarterly) which includes:
- A property narrative.
- Financial Statements (balance sheet, budget variance, 12 month P&L (trailing and YTD).
- Rent roll and property summaries, bank deposit register.
- Disbursements- unpaid invoices by detail, check register and the bank account info (bank reconciliation and statement)
These reports can vary depending on the management company; these are what Centra Asset Partners, LLC provides. Frequency and report content can change if YH elects to use a vetted management company in a distant submarket should that be a more efficient management solution than utilizing Centra.