Low-rise Multifamily Bridge Loan In Northwest Washington, DC.

OPPORTUNITY

After experiencing funding delays with another lender, the sponsor—a repeat borrower with a solid track record—approached Red Oak Capital Holdings for an $8.5-million bridge loan to take out the current lender and complete the rehabilitation of a low-rise multifamily property in northwest Washington, DC.

The garden-style community, located at 5320 8th St. NW, sits on a 0.34-acre site that has been designated as an Opportunity Zone.

SOLUTION

Red Oak provided an $8.5-million bridge loan with a 12-month term and two six-month renewal options. The borrower will use the funds to pay off the existing debt and complete the asset’s rehabilitation, which was already 40% completed at the time of closing.

The three-story property was originally built in 1927 with 38 studio and one-bedroom units respectively averaging 375 and 625 square feet. The developer has already converted unutilized storage space into three new units of about 900 square feet. When work is completed next year, it will contain 41 three-bedroom, one-bath units averaging 750 square feet. Upgrades include new flooring, countertops, cabinets, lighting, HVAC system, bathrooms, and an all-new appliance package and stackable washer/dryers in each unit.

CONSIDERATIONS

Red Oak was also comfortable with the asset, its location and its prospects based on the investor’s business and exit plan. The borrower expects to lease up 100% of the units within 120 days of completion and receiving final certificate of occupancy, and then refinance with a conventional bank loan, credit union or portfolio lender/investor.

All 41 newly updated units will ultimately be leased to residents under the federally funded Housing Choice Voucher Program, which will provide partial to fully guaranteed subsidized rent to landlord and has a lengthy waiting list in Greater DC area. There is significant potential for value creation due to higher subsidized HCVP rental rates in the neighborhood, especially in the three-bed floorplan that this borrower specializes in creating. Once completed and stabilized, the units are expected to generate monthly rents of just over $3,000 (excluding utilities).

The property is well situated in the upper northwest section of Washington DC, in the residential neighborhood of Brightwood Park. It is in close proximity to retail and transportation, including the Georgia Avenue-Petworth Metro Station. The subject property is also 1.5 miles away from The Parks at Walter Reed, the $1-billion-plus mixed-use redevelopment of the 66- acre Walter Reed Hospital campus.