Deal at a Glance
| Loan Amount | $16,500,000 (or 45% LTV, whichever governs) |
| Property | Multifamily co-op unit portfolio |
| Location | New York, New York |
| Transaction | Cash-out refinance |
| Lender | a bank |
| Rate | 5.00% fixed for 60 months, then 6-month LIBOR + 3.75% (5.00% floor) |
| Term / Amortization | 10 years / 30 years |
| Rate Adjustment | Semi-annual after fixed period, 1.00% per adjustment / 6.00% lifetime cap |
| Prepayment Penalty | 5%/4%/3%/2%/1% (years 1-5), none thereafter |
| Recourse | Full recourse to managing members and 25%+ owners |
| Payment Reserve | $1,600,000 at closing, replenished to 18 months P&I coverage |
| Restricted Deposit | 5% of loan amount ($825,000), reducing to half at 50% UPB paydown |
| Collateral | Mortgage plus equity pledge of membership interests |
| Application Deposit | $75,000 |
| Closed | Q4 2021/Q1 2022 |
The Deal That Walked in the Door
We are Commercial Lending Solutions, a commercial mortgage brokerage based in Los Angeles, and this refinance brought us an ownership group holding a substantial multifamily co-op unit portfolio in New York, NY. The ownership wanted to pull significant cash out of the portfolio while managing the specific regulatory and reserve requirements that come with financing residential units in a market shaped by rent regulation history. Commercial Lending Solutions specializes in multifamily cash-out refinancing and permanent financing for investors across New York and nationwide.
New York, New York multifamily lending carries underwriting considerations that don't come up in most other markets, particularly around rent regulation status once units turn over, and finding a bank willing to size a large cash-out refinance against that backdrop required careful structuring around reserves and legal confirmations rather than a standard multifamily underwrite.
What Made It Hard
- Layering two separate cash reserves on top of the loan itself. Beyond the standard debt service, the structure required both a $1,600,000 payment reserve and a separate 5% restricted deposit account, each with its own replenishment and reduction mechanics, adding real complexity to how the ownership managed liquidity around the refinance.
- Confirming rent regulation status on a co-op portfolio. The lender required a legal opinion confirming the collateral units were not subject to New York rent regulations once vacated, a market-specific diligence item that materially affects how a lender values future income potential as units turn over.
- Structuring a hybrid fixed-to-adjustable rate against a 10-year term. With the rate fixed for five years before converting to a 6-month LIBOR-indexed adjustable rate with semi-annual resets, the ownership had to plan around both the known initial period and a capped but variable second half of the term.
"Two stacked reserves and a rent regulation legal opinion is a lot to manage on one closing. Getting the ownership group to see those requirements as capital planning, not just underwriting boxes to check, is what kept the actual net proceeds matching what we modeled at application."
How We Ran the Process
Trevor Damyan, a California-licensed real estate broker (CA DRE 02244836), placed the cash-out refinance with a bank, with the signed letter of interest dated October 4, 2021:
- $16,500,000, or 45% loan-to-value as determined by the lender, whichever was more restrictive, structured as a cash-out refinance
- An initial rate of 5.00% fixed for 60 months, converting after the fixed period to the 6-month LIBOR index plus a 3.75% margin, with a 5.00% floor and semi-annual adjustments capped at 1.00% per adjustment and 6.00% over the life of the loan
- A 10-year term amortized over 30 years, with a declining prepayment premium of 5% in year one down to 1% in year five, and no premium thereafter
- Full recourse to all managing members and any member holding 25% or more ownership interest in the borrowing entities
- An equity pledge agreement requiring the borrower to pledge membership interests in the borrowing entity as additional collateral alongside the mortgage
- A $1,600,000 payment reserve established at closing in a dedicated deposit account, required to be replenished back to 18 months of principal and interest coverage each time the balance fell to 3 months of coverage remaining
- A restricted deposit account equal to 5% of the loan amount ($825,000), held for the life of the loan and reducing to half that amount ($412,500) once the unpaid principal balance amortized down to 50% of the original loan amount
- A dedicated operating deposit account with the lender, with loan proceeds deposited directly into that account at closing and automatic ACH payments enrolled for debt service
- A required legal opinion confirming the collateral units were not subject to New York rent regulations once vacated, plus DHCR registration and a complete rent roll with move-in dates provided prior to appraisal
- Partial release provisions allowing individual units to be released from the collateral pool at 130% of their allocated loan amount plus a 1% paydown fee, with allocated amounts set at final underwriting
The refinance closed with both reserve accounts fully funded and the equity pledge, rent regulation opinion, and other market-specific conditions satisfied, delivering substantial cash-out proceeds to the ownership group against a portfolio structured for long-term hold.
Why We Won This One
Structuring the layered reserve requirements clearly upfront, rather than negotiating them piecemeal during underwriting, is what kept this large cash-out refinance on track. A $1,600,000 payment reserve and a separate $825,000 restricted deposit represent meaningful capital set aside outside the loan proceeds themselves, and getting the ownership group aligned early on exactly how much liquidity the deal actually required avoided a mismatch between expected and actual net proceeds.
Getting ahead of the rent regulation legal opinion also mattered on a New York co-op portfolio. Confirming that status directly, rather than letting it surface as a late-stage underwriting condition, kept a market-specific diligence item from becoming the deal's critical path this close to closing.
Is This Structure Right for Your Deal?
If you're refinancing a multifamily portfolio in a regulated rental market and need substantial cash-out proceeds, a bank comfortable structuring layered reserves around that market's specific risks can unlock leverage a standard multifamily lender won't offer. We arrange permanent loans and multifamily financing from a network of more than 1,000 capital sources.
Apply for financing or call us at 310.708.0690 to talk through your refinance.
Trevor Damyan is a commercial mortgage broker at Commercial Lending Solutions with a background in structured finance at CBRE and Marcus and Millichap Capital Corporation. He specializes in bridge loans, construction financing, SBA programs, DSCR loans, and complex capital structures for investors and developers across all 50 states.
View full profile →