Starwood funds $59m Orlando apartment loan into rising rental market

Charles Foschini, who arranged the loan via Berkadia, said rising rental rates at Enclave at Lake Ellenor meant the borrower was able to secure better terms.

Starwood Property Trust has originated a $59 million loan on behalf of a joint venture between East Hill Capital Partners and The Bascom Group for the acquisition of a 320-unit value-added apartment community in Orlando. Funding the loan came at a time when new leases at the property were being signed at higher rates.

The four-year, floating-rate bridge loan is interest-only for its entire term and is split between $54 million of up-front proceeds and another $5.83 million of future funding, said Charles Foschini, a senior managing director at Berkadia, which arranged the financing. Rising demand and rents at the property, Enclave at Lake Ellenor, meant the borrower was able to secure better terms.

“The key takeaway from this transaction is while the buyer was under contract, rent renewals continued to be very strong and to be at a much higher rate than the current rent, or even what the buyer had underwritten, and that’s a very attractive position for a lender to come into,” Foschini explained. “[This] is enabled us to secure the loan at the higher leverage and lower cost of capital, but it’s also a bellwether for how multifamily will continue to perform in the foreseeable future.”

The location was also a key factor in this deal, as the Orlando market saw rents climb 19.5% year to date, making it one of the strongest rent growth markets in the country, according to a 2021 Berkadia research report.

The loan was arranged via Berkadia’s Miami office, with Foschini working with fellow managing directors Chris Apone and Scott Wadler. The firm’s Miami office last year completed 25 transactions with 18 different capital sources. Multifamily has stood out during that time, Foschini told Real Estate Capital USA.

“Multifamily as an asset class has been white hot this entire cycle and as such it is a focus and an opportunity [for us], and it is where our clients have been buying so we serve their needs,” Foschini added.

Looking ahead

Specific to the Miami team, loans generally average about $40 million with a range of $10 million to $250 million. From a broader company standpoint, Berkadia, a joint venture between Berkshire Hathaway and Jeffries Financial Group, originates loans across the board, both below and above these amounts.

“As a large lending correspondent shop, Berkadia works with many capital sources but is a market leader as a direct source of capital for Freddie Mac, Fannie Mae and FHA, the largest government sponsored multifamily lenders in the country,” said Foschini. “We believe that multifamily and industrial will continue to dominate investor and lender appetite in the near and mid term – they’re asset classes that have performed extremely well in the pandemic, which even as we adapt to it, isn’t over yet.”

From a geographic perspective, Foschini is betting on the southeast, citing warmer locations such as Texas and Florida.

“Locations that have the ability for folks to congregate safely outdoors have a huge advantage,” explained Foschini. “When you overlay that with its proximity, its relative costs compared to other major cities, and its openness from a political standpoint, in terms of being a place anxious to do business and recruit new business, you’re going to see that to continue to accelerate. [Additionally] as high-quality employment is recruited into the southeast, there’s going to be more people wanting to be here or needing to be here.”