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$39.5 million refinancing of The Paddock benefits Hagan Properties

July 22, 2011 By Hagan Properties

JUL

By Kevin Eigelbach – Staff Writer
Jul 22, 2011, 6:00am EDT

The owners of The Paddock at Eastpoint, a 500-unit apartment complex off La Grange Road, recently refinanced the complex in a $39.5 million deal.

The Louisville-based Mercer Rowland Ryan Financial Group of UBS Financial Serv­ices provided the loan, which was the largest such loan in terms of dollars that the Louisville office has done since at least 2000, said Todd Mercer, senior vice president for UBS in Louisville.

Hagan Properties Inc., which built, owns and manages The Paddock, had searched for permanent financing for well more than a year before closing the deal with UBS, Hagan Properties principal Wendy Hagan said.

It was not very difficult to find financial institutions willing to lend money based on the future cash flows from an apartment complex, she said. “Apartment communities are sort of the darlings of financing right now,” she said.

But it was hard to find a financial institution willing to fund such a large complex, Hagan said.

A $40 million refinancing would exceed the lending limits for most community banks unless they decided to collaborate on a loan, which rarely happens, said Tim Martin, chairman of the real estate department at Louisville law firm Frost Brown Todd LLC.

Regional banks, such as PNC Financial Services, could make a loan that big, he said, but their willingness to do so would depend on how much of that particular asset class they had in their loan portfolios.

Underwriting standards at banks have tightened since 2008, he said, with banks requiring more up-front equity to make a loan. If he had a client that wanted $35 million or so to finance an apartment complex, he said, he would refer them to a life-insurance company.

“They are less risk-averse (than banks),” he said. “They love apartments.”

Many offers to purchase
Hagan Properties had many offers to purchase The Paddock complex, but that isn’t the company’s business model, which is to build then manage its own properties, Hagan said.

Hagan Properties connected with UBS through Wendy Hagan’s husband, Scott Hagan, principal and founder of Hagan Properties.

UBS handles Scott Hagan’s personal wealth management, Mercer said.

Scott Hagan and Mercer were talking about the lack of a go-to bank for large real estate lending because of the 2008 financial crisis, Mercer said, when Scott Hagan mentioned that Hagan Properties needed permanent financing for The Paddock. Mercer arranged for financing through a UBS division that specializes in real estate lending.

In addition to being an investment manager, Zurich, Switzerland-based UBS AG is one of the world’s largest banks, Mercer said. “We want people to think of us on both sides of the balance sheet.”

Takes risk off the table
The loan provides Hagan Properties with a 10-year locked-in interest rate with a 30-year amortization schedule, Mercer said.

It replaces two previous loans, a permanent loan from Nationwide Insurance and a construction loan from Regions Bank, Wendy Hagan said.

“We’re really excited about doing the deal,” Mercer said. The Paddock “is probably, if not the nicest, then one of the nicest and premier multifamily properties in Louisville.”

The loan took a lot of risk off the table for Hagan Properties by changing variable-rate loans to a fixed interest rate, Wendy Hagan said. The interest rate dropped to 5.29 percent from 6 percent, she said, and the interest savings will be substantial, but she declined to say how much.

She said the change enables the company to “spend more time doing business and less time worrying about financing.”

Filed Under: In The News

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