New building debts are difficult to secure today. With co-living deals, the challenges are even greater – but that doesn't mean they won't get done. ELK development Recently, $ 14.1 million was raised to build an 86-unit home in an opportunity zone in Hollywood.
Shared flats have to meet some specifics in order to arouse interest from lenders. "It's still limited and it's a tough asset class to do right now." Shahin Yazdi, Managing director and managing director George Smith Partnerstells GlobeSt.com. “People don't know what the future will bring in this room. However, there are still lenders interested in the asset class with the right dynamics. At this point in time, co-living arrangements must have at least one bathroom for each bedroom. The more restricted the contact, the more comfortable a lender can be. "
Yazdi secured the financing on behalf of the developer. The home loan has a fixed interest rate of 4.75% with a loan at 65% of the total cost of the project and a term of 24 months. The Mini Perm loan is set at 4.5% and has a term of five years.
In addition to private bathrooms, ELK Development also has kitchenettes in each bedroom to keep lenders interested. “In our store, every bedroom also had a kitchenette, so we got the idea that they were micro-units. Each bedroom is almost an independent unit, ”says Yazdi. “Although it is intended to be run as a shared apartment, we really felt like we were funding a number of micro-units, which made the lender even more convenient. When they started to understand the property, the rents really got down to it. "
In addition to the layout configuration, lenders want the deals to be drawn as an apartment deal, which is not a material departure from pre-pandemic lender requirements. "Lenders still want the deal signed as an apartment, which is a challenge in its own right," says Yazdi. “It is difficult to build a three bedroom / three bathroom apartment or a four bedroom / four bathroom apartment. This is not a standard in the housing market, but it is still doable. "
Lenders also want to see the value of the co-living model in the property. This usually leads to below-market rents for a comparable market unit. “You still have to be in the market to find out what someone can get in a studio. Why else would he pay to live in a dormitory? "Says Yazdi. “At the end of the day, it comes down to the numbers. The economy has to make sense. It's really important. "