June 27, 2017
George Smith Partners secured $9,050,000 of refinance loan proceeds with a national balance sheet lender for a 47,000 square foot medical office building in the San Gabriel Valley, approximately 25 miles east of downtown Los Angeles. Fixed at 3.51% for five years and sized to 60% of value, the loan will amortize over 25 years and carries a yield maintenance prepayment penalty. There was no origination fee and the portfolio lender paid for all third party reports.
The property is owned under a Tenants-In-Common (TIC) structure, precluding most capital providers from funding the non-single purpose borrower. The TIC ownership also created a need for extensive documentation on all investors. Our secondary market location and nearest hospital located eight miles from the subject added additional drag on the refinance request.
Our balance sheet capital provider accepted the TIC structure subject to underwriter all individuals with ownership over 20%. Historical financial data documented the remarkable stability of cash flow with medical office tenants despite not being adjacent to a hospital. GSP surveyed the market and demonstrated that although the property was not located near a hospital, it offered medical providers and services that were unique to the area. This resulted in high patient volume and long-term tenants.
July 6, 2016
George Smith Partners successfully structured and placed the non-recourse acquisition bridge loan for a medical office building adjacent to a Los Angeles hospital. Our Sponsor will complete a significant capital improvement plan and increase rents upon lease roll-over. The 95% physical occupancy at close supports this business plan as there is significant market demand yet very little supply. Sized to a 9.0% in-place debt yield, additional advances will be funded to maintain the 9.0% debt yield as NOI is increased. Future disbursements will fund capital to complete upgrades as well as pay for tenant improvements and leasing commissions. Interest is only paid as funds are disbursed for the first two years of the five year term. Priced at LIBOR plus 255, there is no prepayment penalty.
March 16, 2016
Transaction Description: George Smith Partners successfully secured the 70% of cost acquisition of a 39,000 square foot on-campus medical office building in Gardena, California. Initially master leased to the adjacent hospital, the master lease expired a year prior to this acquisition. Allowing for the first year of interest only, the bridge to perm loan is fixed for five years at 4.25% and will amortize over 25 years for the balance of the term. This loan was sized to a 1.20 debt coverage ratio on the interest only debt service payment against the actual cash flow at the time of funding. Prepayment steps-down from 4% and is open without prepayment for the final year. This structure includes a one-time future earn-out of $627,000 should the subject obtain 90% occupancy within the first year.
Challenges: Most of the tenants were on month-to-month or had no lease in place; seller historical operating history was incomplete. Physical occupancy was only 79% at application and those tenants with leases presented significant turnover during the first few years of the loan. Minimal in-place cash flow at funding challenged loan proceeds. Our Sponsor did not have any experience owning or operating medical office real estate.
Solutions: Estoppels were secured for underwriting to back-fill incomplete P&L statements. Two lease extensions were negotiated and executed with current tenants to minimize the rollover exposure. By sourcing a capital provider whose DCR requirement was based on interest only payments, we were able to maximize loan dollars while meeting their underwriting guidelines in spite of the property’s low, in-place NOI. Market strength and hospital campus location supplemented the Borrowers’ financial strength. A 3rd party property management company was engaged for day-to-day operations.
September 2, 2015
GSP arranged the $18,037,500 non-recourse first mortgage from a regional commercial bank on the acquisition of an 114,471 square foot, 1940’s San Gabriel Valley medical office building. The loan allows the opportunity for the Sponsor to redevelop an approximately one-acre surface parking lot at a future date. GSP sourced a lender who was comfortable with the numerous month-to-month tenants in the mid-century vintage, masonry construction building. The subject is not adjacent to a complimentary hospital system. Sized to 65% of purchase price, the first mortgage priced at one-month LIBOR plus 2.65% (2.90% all-in today with a 25 basis point floor) and required a LIBOR cap with a 3.00% strike price for the first two years of the term. The LIBOR cap renewal structured for the third year reduced the cap cost to Borrower by shortening the cap’s duration. Interest only for the first 12 months, the 3 year term amortizes over 25 years for the remaining loan term.
August 20, 2015
Transaction Description: George Smith Partners placed the bridge refinance for a newly constructed medical office building in Decatur, Georgia. The 33,685 square foot structure was developed for multi-tenant use. An interim bridge loan was required to finish outstanding tenant improvements, payoff property liens and bring the asset to stabilization for perm financing. In-place cash flow is not sufficient to service the debt; an interest reserve was funded to cover the short-fall. Sized to 72% of As-Is value, the recourse loan is fixed at 11%, Interest Only for 6 months and was funded within four weeks of application.
Challenge: The existing loan had matured and borrower was in technical default, paying default interest rates. Certainty of execution and speed were compulsory as it was just weeks away from foreclosure. Tenant improvement costs exceeded budget, requiring additional proceeds to complete the build-out prior to occupancy.
Solution: GSP identified a private capital source who took the time to understand and become comfortable with the Sponsor’s business plan and the property’s intrinsic value. Once the capital’s interest was confirmed, GSP vetted the transaction risk exposure and structured the loan criteria to avoid closing pitfalls, satisfying both Borrower and Lender. Funds were allocated to finish outstanding tenant improvements, payoff mechanics liens and provide for a viable refinance exit.
March 19, 2015
Transaction Description: Steve Bram, David R. Pascale and Brian Asheghian successfully arranged a $6,320,000 permanent acquisition loan of an owner-user medical office building in Beverly Hills, California. The Sponsors occupy over 50% of the building, qualifying for owner user financing. This is the first commercial property the Sponsors own and they will self-manage the property. The subject includes a two story 8,600 square foot medical office footprint with a 3,750 square foot surgical center, numerous doctors’ offices and a private parking lot. The surgical center caters to a very high end client base that enjoy luxury surroundings, designer furnishings, a plush waiting room, private patient suites, three state of the art operating rooms and six private room recovery beds. This size medical building with its’ own surgical center is rare in Beverly Hills; the surgical center use is grandfathered. The property is adjacent to a 5-Star Hotel, providing overnight stays for extended patient recovery. GSP identified a bank that was creative on the loan structure while providing competitive terms including a very competitive rate and no lender origination fee. The loan was sized to 80% loan-to-value ($734 psf), with a 10 year fixed term at 3.42%, amortized over 25 years with a step-down prepayment penalty.
July 24, 2014
7 – 23 – 2014
Transaction Description: GSP placed $6,279,000 of non-recourse financing to complete the construction of a 35,000 square foot medical office building space in Decatur, Georgia. The client was not a seasoned real estate developer but savvy enough to identify an immediate opportunity in a burgeoning market. The building was only partially completed and required additional construction financing to bring the asset to Certificate of Occupancy. Multiple lenders were not comfortable due to the sponsor being a relatively unseasoned developer and stepping into a partially completed construction project with a new general contractor. The Borrower was unable to provide a repayment guarantee due to a recent bankruptcy, open tax liens and pending litigation. Sensitive to initial lender deposits, the Borrower had previously been under application to a private lender who lacked discretionary capital and utilized the deposit as a profit center, without providing services. GSP procured market rate comps and supporting documentation to confirm market strength and provided an unsolicited LOI for a sale of the subject prior to obtaining the CofO. Sponsor capacity was substantiated by his ability to bring the asset to its’ current level of completion, retain a new GC and pre-lease 100% of the 35,000 square feet to multiple tenants. GSP called on their relationship sources to identify discretionary capital motived by funding loans over collecting one-off fees. The one-year, non-recourse floating rate term is priced at 10.5% and does not require a prepayment penalty. Rate: 10.5% Term: One Year Amort: Interest Only Prepayment: None Non-recourse Advisors: Gilda Rivera, Salar Royaei