The Gibson, an 80-unit condominium located in the heart of Washington, DC, was constructed in 1981. As could be expected with a building of this age, the glass and windows were due for replacement, and the association board was tasked with sourcing a loan to cover the expense. Not only would this project serve to fix issues with the existing windows and doors, it would also protect and enhance the value of the owners’ investments in their units. FirstService Financial was engaged to assist in the loan process, and ultimately the association and financial institution were able to agree to the following terms:
$1,500,000 loan, 12-month non-revolving line of credit (draw period) followed by a 10-year term at 4.06%, fixed at closing
FirstService Financial assisted in the entire process and provided value in three distinct ways:
1- Extended Closing Time:
In most cases, once a bank approves a loan, the financial institution will honor those terms for a period of up to 60 days. In this particular case, the process dragged on well beyond the accepted time frame, meaning that the association would normally be forced to renegotiate terms. Using its leverage, FirstService Financial was able to convince the bank to honor the same pricing until the association was ready to close, saving the association time and ultimately money.
2- Fixed Interest Rate from the Start:
On condominium loans of this structure, (with a draw period preceding the payback term), many banks will “float” the interest rate during the draw period. This means that the interest rate for the payback portion of the loan will not lock in until the association converts it from a line of credit to a term loan. With FirstService Financial involved, the loan was structured so that the rate was “fixed” prior to closing, and the association eliminated interest rate risk between the closing and the conversion date.
3- Interest Savings:
The benchmark interest rate for a comparable loan in the market is 4.50% should an association attempt to secure its own financing. It is safe to say that the 4.06% interest rate was in large part due to FirstService Financial’s relationships with its lending partners. The difference in debt service over 10 years on a $1,500,000 loan between 4.06% and 4.50% (benchmark pricing) is $38,000. We are proud of the savings we were able to achieve on behalf of our valued client.
While it is certain that experience and expertise are the differentiators in delivering value to our clients, a little bit of luck helps as well. Within days of closing this loan, interest rates spiked, meaning that even a slight delay would have cost the association thousands of dollars. We’re happy that time was on our side!