Black Bear Capital Partners, a New York-based real estate advisory company, earlier this month arranged a $19.75 million loan with a novel twist for Ashley Development Corp’s construction of a pair of luxury multifamily properties in Lehigh Valley, Pennsylvania.
The advisory company was able to bring in Churchill Real Estate, a New York-based debt fund, to provide interest-only, non-recourse construction financing at a 77 percent loan-to-cost. The twist was that Black Bear Capital’s parent company, investment firm Black Bear Asset Management, layered in a 5 percent preferred equity investment that brought up the loan-to-cost to about 83 percent.
Black Bear Asset Management made the investment as a way of creating a long-term strategic relationship with Ashley Development, which is a specialist in the rapidly growing Lehigh Valley market, said Emil DePasquale, a senior managing partner at Black Bear Capital Partners.
The loan piqued Black Bear Asset Management’s interest for several reasons. Most notably, Ashley Development has been active in Lehigh Valley since 1989 and knows the ins and outs of an apartment market that has a 1.4 percent vacancy rate for luxury product. Additionally, the borrower was approximately 85 pecent finished with the first of the four planned buildings that will comprise the 102-unit development, Sullivan Parke.
Still, this was not a straightforward situation, DePasquale told Real Estate Capital USA.
“The sponsor was seeking a more favorable debt structure to exit from their current conservative debt situation. We were able to arrange senior non-recourse construction financing plus layered in preferred equity that allowed them to move ahead,” DePasquale said. “It can be hard to get a lender to come in mid-stream during construction, but Ashley had a good track record and developments in this area have a high barrier to entry.”
There is a bigger story around Lehigh Valley, which is seeing a supply-demand imbalance for high-end product. The Lehigh Valley has a GDP of about $43 billion, is larger than Alaska, Wyoming and Vermont combined and is home to about 15,000 businesses that include Fortune 500 companies like Crayola and Olympus. There have been about 11,000 jobs created over the past 12 months and, during that period, rents have risen by about 13 percent.
Black Bear Capital Partners is working with several clients in this market on additional construction loans and take-out loans in the multifamily market. The firm works across all property types and has closed more than $800 million of new loans year-to-date with another $400 million in its pipeline. The firm recently opened offices in Chicago and New Jersey.