$5,100,000 Non-Recourse Bridge to Reposition an Industrial Building to Creative Office for a Single, Non-Credit Tenant
June 21, 2017
George Smith Partners arranged $5,100,000 of non-recourse, bridge financing to complete the conversion of a 26,000 square foot, 100% vacant, 1920’s vintage, industrial building into creative office space in a major Southwestern city. The property is well-located near a central business district and is 100% preleased to a single, non-credit-rated tenant. Although not investment-grade, GSP was able to source a Capital Provider comfortable with the tenant’s financial history and business operations. The sponsor acquired the property with cash and proceeds will be used to complete the conversion, taking advantage of the growing creative office market.
$35,000,000: $25,200,000 “Non-Recourse” Credit Facility and $9,800,000 in JV Equity Financing for 97,440 SF Creative Office Conversion with Ground Floor Retail in Downtown Los Angeles
May 31, 2017
George Smith Partners secured $35,000,000 in capital for the conversion of the Norton Building, located in the Fashion District of Downtown Los Angeles. The capital is going to be used to convert the existing mixed-use asset into creative office space with ground floor retail. The $35,000,000 was comprised of a $25,200,000 non-recourse credit facility, which was split into a $12,900,000 term loan fully funded at time of closing and a delayed draw term loan of up to $12,300,000 for tenant improvements and leasing commissions. Additionally, the capital stack was topped off with $9,800,000 in joint venture equity financing which was also arranged by GSP.
The project was one of the first of its kind in the sub-market and GSP needed to ensure capital providers were comfortable with the demand for creative office tenants within this sub-market of Downtown Los Angeles.
George Smith Partners was able to demonstrate the market demand for creative office space via recent leasing trends within the sub-market. Additionally, GSP leveraged off of preliminary negotiations the Sponsor had with potential tenants in order to demonstrate the demand for creative office space at this location.
May 17, 2017
George Smith Partners successfully arranged $80,000,000 in permanent refinancing for a Class A, high-rise, trophy asset office building in a primary market in California. Sized to 32% of appraised value and a 1.78 DCR, the 10 year interest only loan is priced at 2.19% over the 10 year SWAP Rate. The building was situated on an unsubordinated ground lease, which presented challenges. While the property was widely recognized as a trophy asset in the market, the building had low occupancy and above market rents. GSP sourced a capital provider who underwrote the property with an emphasis on gross potential rent as evidenced by Sponsor’s confidence and willingness for occupancy growth with more aggressive pricing of rents. This allowed the lender to get comfortable with the low occupancy along with strong debt coverage on in place cash flow.
70% Leverage Non-Recourse Refinance of a 65% Occupied Office Complex with Single Tenant Concentration and Rollover Risk at Loan Maturity
May 3, 2017
GSP arranged $16,510,000 in non-recourse first mortgage financing from a national debt fund on a 65% occupied Class A office complex in North San Diego County, California. A credit tenant with a 2022 lease expiration accounts for over 90% of current property income and the vacancy is mostly comprised of a single 26,000 square foot contiguous space.
GSP marketed the transaction by filtering out vacant spaces that were not competitive with the subject property and highlighted the lack of large customizable available spaces in the market which the subject property possessed. GSP sourced a lender familiar with the local office inventory and recognized the leasing potential of a large customizable floor plate in a market with increasing demand for corporate headquarter space.
In order to maximize Sponsor cash flow, the loan is structured as interest only with a three year initial term and two one-year extension options. To mitigate rollover risk at loan maturity, a cash flow sweep commences if the existing credit tenant does not exercise an early lease renewal by month 30 of the loan term. $14,750,000 in loan proceeds funded at closing with an additional $1,760,000 funding for lease-up related tenant improvements and leasing commissions to be disbursed prior to month 24 of the loan. Interest on the future funding is not charged until the earlier of disbursement of proceeds or month 24 of the loan. The first mortgage debt priced over one-month LIBOR and required a LIBOR cap with a 3.00% strike price for the initial term.
Term: Three years plus two 12-month extensions
Amortization: Interest Only (initial term and extensions)
Max Loan to Value: 70% Initial, 65% stabilized
Prepayment: 15 months spread maintenance, open thereafter
Lender Fee: 1.00%
April 26, 2017
George Smith Partners arranged $5,500,000 in acquisition proceeds on a 15,122 square foot Los Angeles office building. Floating at Prime + 0.5%, the 3 year loan is interest only for 18 months before amortizing over 25 years for the balance of the term. Sized to 65% of the purchase price, there is no prepayment penalty for this loan.
Despite the prime location, the subject had somewhat aged interiors and exteriors and was just 70% occupied when our Sponsor executed the purchase contract. The income was below break-even debt coverage on the proposed loan. Most of the in-place tenants were paying well below market rent. One tenant was under a month to month lease and several others were facing lease roll in the next six months. On-site property management was charging an above market rate. Actual historical cash flow was well below potential.
GSP researched comparable rent and competitive operating data that proved out our Sponsor’s pro forma rents and business plan. Our Sponsor’s considerable success adding value to similar office properties over the past several years supported the business plan for the loan request. An aggressive lease campaign was initiated during due diligence, securing letters of intent from multiple tenants that would bring occupancy to 95%. A small debt service reserve was structured until the tenants took occupancy to cover all operating loss and mortgage expenses in the short interim.
$7,350,000 Non-Recourse Pre-Development Financing on a Predominantly Vacant West LA Office & Retail Building
March 28, 2017
George Smith Partners arranged a $7,350,000 non-recourse loan to 75% of appraised value from a national debt fund to finance the pre-development period of an existing 12,500 square foot, West Los Angeles office and retail building. Despite having very low occupancy, the lender was able to advance $588 per square foot after GSP demonstrated the superior location of the asset and experience of the Sponsor in development. The lender structured a 12-month interest and carry reserve as the Sponsor vacates the remaining in-place tenants in order to implement its business plan of eventually razing the existing improvements and building a new, high-end, multi-tenant retail building. Loan proceeds were priced at 9.50% fixed for the 18-month loan duration, and interest expense is not incurred on the interest and carry reserve until drawn.
February 15, 2017
George Smith Partners arranged $10,390,000 for the refinance of a stabilized office building in Bakersfield, California. The loan was put into application with a verbal commitment from the largest tenant to extend their lease for an additional four years. While in application for the loan, the tenant became non-responsive and it became clear that they were debating whether to extend. As a primary tenant, the extension was critical to the loan closing. GSP worked directly with the tenant and the leasing broker to understand the market and to structure the lease terms to work for the tenant, landlord, and the lender. The lease was executed in a matter of weeks which allowed the lender to fund and avoid an imminent balloon default on the existing loan.
February 1, 2017
George Smith Partners successfully arranged $73,000,000 in non-recourse, bridge financing for the conversion, renovation, and stabilization of the Seattle Design Center. The design center, comprised of two buildings in the Georgetown submarket of Seattle, Washington, historically served as a well-known destination for high-end home furnishings and design services. After acquiring the property in 2014, the Sponsor renovated the first 157,000 square-foot building. Upon completion, the Sponsor continued to operate the asset as the Seattle Design Center and consolidated the showroom/design tenants from the second building into the newly renovated building. Once the second building was vacated, the Sponsor began repositioning the 280,000 square-foot building from showroom space into creative office space. Upon completion, the building will have expansive 60,000 square-foot floorplates, exposed ceilings and concrete floors, glass walls for natural light, unobstructed views of downtown Seattle and Mt. Rainier, and full-service amenities, including an upscale fitness center and conference center. Pre-leased to 45% occupancy, Sponsor needed additional proceeds to complete the project. GSP identified a Lender who recognized the value of the project, supported by low supply and increasing market demand for creative office from tenants in the technology sector. Sized to 80%+ of total project costs, the $73,000,000 non-recourse loan was priced at LIBOR + 6.75% for a 24-month term with one, 12-month extension option. $49,000,000 of total proceeds was funded at closing with an additional $24,000,000 future funding allocated toward completion of the renovation, construction, tenant improvements and leasing commissions.
January 4, 2017
George Smith Partners successfully placed the $34,400,000 non-recourse bridge loan, sized to 92% of total cost, for a 238,000 square foot retail shopping center and 67,000 square foot Southern California office building. This 1960s vintage property is well-located and sits on a 17 acre parcel with a traffic count of over 60,000 vehicles per day. Proceeds will be used to satisfy the existing term loan and a majority of the $17,400,000 in planned renovations, tenant improvements, leasing commissions, and other capital expenditures. Retail occupancy includes four value oriented chains, several local retailers, a future grocer and a national fitness/gym chain. The office building will be renovated to feature street level retail pre-leased to regional and national restaurant chains including Chipotle, Five Guys Burgers, and Ono Hawaiian BBQ. Office occupancy of the upper three floors will include a mixture of full floor tenants and local businesses. Several of the office tenants are currently leased month to month, but is supported by a strong occupancy history. Subject to several ground-leases executed in the 1950’s, all leases were recently restated and extended. Floating at 545 over 30 day LIBOR, the non-recourse loan provides for carve-outs executed at the entity level only with no warm body guarantor. The three-year term has one 12 month extension with interest paid current monthly; there is no interest reserve or amortization.
December 7, 2016
George Smith Partners arranged the $7,800,000 acquisition loan for a 10,397 square foot creative office in San Francisco. Recently leased by a global financial services firm, the trophy asset was previously repositioned into creative office, while maintaining historical architectural heritage of the original building. Emphasizing the importance of closing as applied for, this escrow represented the Sponsor’s “down leg” for a 1031 exchange. Fixed for ten years at 4.56%, the non-recourse loan offers 5 years of interest only before amortizing over 30 years.
It was crucial to identify a Lender who would underwrite full proceeds on a tight capitalization rate where loan proceeds would be cash flow constrained. High dollars per square foot was requested for a non-investment grade tenant who had only 7 years remaining on the first term of the lease.
GSP identified a Lender who was confident with the submarket and understood the value of the location and physical real estate. Lender underwrote to a very aggressive debt yield and felt comfortable with the tenant’s financial strength to merit very high loan dollars per square foot. The lender closed on time and at fully request proceeds.
October 26, 2016
GSP arranged the acquisition loan for a 9,928 square foot office building in Whittier, California for a first time real estate owner. The acquisition allowed our Sponsor to grow her counseling firm rehabilitating injured workers returning to the work force. Prior to engaging GSP, the Borrower sought SBA financing but was declined due to credit issues. GSP identified a bank and CDC (SBA) who invested the time to fully qualify the credit concerns of the borrower prior to issuance of application. The flow of communication and supporting documents led to the approval from both bank and CDC. Sized to 90% of cost the blended Bank 1st Trust Deed and SBA 2nd Trust Deed netted a 3.85% coupon, fixed for 10 years. Amortization is also blended between 25 and 20 years respectively for this recourse loan.
October 12, 2016
Transaction Description: George Smith Partners successfully placed $14,400,000 in acquisition and reposition financing to acquire a 30,400 square foot West Los Angeles office building currently occupied by a single tenant with rolling annual termination options. Our Sponsor’s business plan assumes the current tenant will exercise one of their annual termination options; allowing for a building renovation and conversion to a multi-tenant creative office building with ground floor retail. The tenant, through extensions, may choose to continue to occupy this location and is not obligated to vacate during the initial 3½ year loan term. George Smith Partners sourced a flexible lender comfortable executing on the transaction regardless of the tenant’s occupancy status. Sized to 65% of total project cost, this financing is priced at 2.95% over one-month LIBOR despite the potential for zero cash flow should the tenant choose to vacate. Our Capital Provider underwrote and will fund 100% of creative office conversion and re-tenanting costs. Interest is not paid on this additional $4,400,000 funding until drawn.