Southern Management Closes $2.4B Refinancing Deal For D.C.-Area Apartment Portfolio
Fannie Mae has provided a $2.4B credit facility to refinance a portfolio of 67 multifamily properties in the D.C. area.
The portfolio consists of 22,439 units, more than 60% of which qualify as affordable housing under the Federal Housing Finance Agency guidelines. The credit facility provides a mix of fixed-rate and floating-rate financing with staggered maturities.
Southern Management previously had a single maturity date in 2022 for its roughly $1.5B of loans on the portfolio, Walker & Dunlop Senior Managing Director Brendan Coleman said, a structure that created unnecessary risk. He said the timing was ideal for this transaction because interest rates are low and Fannie Mae and Freddie Mac each have $100B spending caps for the 15-month period beginning Oct. 1, giving them the ability to make large commitments.
"It seemed to make sense because interest rates were low and they had the ability to get really competitive financing and no longer be subject to one day of maturity where all of their loans came due at once," Coleman said.
Discussions around the deal began in late 2019, and the terms were initially agreed upon before the coronavirus created an economic crisis, but the parties still needed to finalize the deal in the midst of a pandemic.
"We were well underway in March and had already done most of our property inspections. So the shelter in place and financial instability that happened, we were able to get ahead of that in a lot of ways," Coleman said. "It was still exceedingly difficult to process this over the last six weeks."
Coleman said the deal terms had not been set in stone prior to the crisis, and he praised the parties for sticking to their commitments.
"Fannie was a great partner that committed to terms that weren't locked, but they honored them even though there was a lot of volatility in the markets," Coleman said. "It was just really great to see that a lot of people followed through on things that were really handshake deals and understandings and weren't totally locked up and there were a lot of adverse changes to the markets, but everybody agreed that we think this is still a great deal."
Walker & Dunlop CEO Willy Walker met with Southern Management CEO Suzanne Hillman in early December when the firm was making its pitch to the property owner, Coleman said, an effort to show its commitment to the deal. W&D's Chris Forte, Connor Locke, Colin Coleman, Adam Johnston and Skye Stansbury worked with Coleman on the deal.
"Walker & Dunlop's creativity, tenacity, and market knowledge resulted in a superior execution for this large and complex transaction amidst the uncertainty of a rapidly unfolding financial and health crisis," Hillman said in a release.
The refinancing deal will allow Southern Management to maintain the affordability of the workforce housing portfolio, which Coleman said is increasingly important in today's environment.
"The fact that so much of it is affordable workforce housing is critical, particularly now more than ever, to be able to provide so many units in such a major MSA that now will be consistent, long-term stock, and Southern’s going to be able to manage their portfolio long-term and not have to worry about the financial instability," Coleman said.