July 26, 2017
George Smith Partners placed the rate and term refinance of four stand-alone Rite Aid Drug Stores. The loans are structured as four separate un-crossed loans to maintain reposition flexibility. At the time of loan commitment, the Walgreens/Rite Aid merger was still under consideration by the FTC and it was unknown if Walgreens would close any of the subject units. Our Sponsor wanted to maintain options and not to allow one store closure to negatively affect the remaining portfolio. Store sales were not available. Each lease has approximately 9.5 years remaining on the initial term. The balance sheet loan is coterminous with the lease term and does not carry the traditional two-year lease hang-out. No reserve structure is required prior to the tenant notice date, six months before the lease and subsequent loan expiration. Fixed at 4.52% for five years, the rate will float over LIBOR for the remaining loan term and amortizes over 30 years. Prepayment steps down allowing for additional reposition flexibly if needed.
$2,475,000 Non-Recourse Mini-Permanent Acquisition Financing for a 693-Unit Self Storage Facility in a Major Metro in the Southwest
July 19, 2017
George Smith Partners arranged a $2,475,000 non-recourse loan for the acquisition of a 693-unit Self Storage facility in a major metropolitan market in the Southwest. Although the facility is well located near a major university and a central business district, many lenders were uncomfortable with the facility having below market occupancy, limited frontage to the road, deferred maintenance, and being niche property type. The institutional sponsor also required fixed rate execution to hedge against rising interest rates, a non-recourse structure, and a flexible prepayment structure. GSP sourced a lender familiar with the strength of the location and sponsorship as well as believed in the property’s upside. Sized to 55% of purchase, the non-recourse loan carries a 4.71% fixed rate for a five-year term and amortizes over 25 years. There is a one-point prepayment penalty for the first three years of the term with no prepayment penalty thereafter.
June 27, 2017
George Smith Partners secured a $33,700,000 refinancing loan for two multifamily properties in Southern California. The 10 year loan with 5 years interest only, priced at 10 Year Swaps + 2.30 (4.41% coupon), replaced expensive high leveraged bridge debt. The loan was cross collateralized with both properties, which totaled 397 units. The two very different properties consisted of a 97 unit trophy asset overlooking the ocean and a less well located 300 unit property with a higher cap rate.
For the 97 unit trophy asset, the sponsor’s proceeds requirement to refinance the preceding high leveraged bridge debt could not be met by a conventional lender, including agency lenders. This was because the property’s extremely low cap rate and debt yield constrained the potential loan size, therefore hindering the property’s ability to refinance its current debt.
GSP understood the diverse property dynamics of each asset and developed the strategy of cross collateralizing the two assets. GSP recognized the upside in presenting the properties as a “package deal”, particularly as it related to solving the debt yield challenge. By crossing the two properties, GSP synthetically created a debt yield in the sweet spot of most lenders. At the same time, lenders became more comfortable with the less well located building because it was being bundled with a trophy asset with an irreplaceable location. Additionally, GSP knew by bundling the properties together and creating a larger transaction that lenders would be prone to increase proceeds and decrease pricing, as compared to two separate smaller transactions. GSP ultimately was able to identify and place incredibly aggressive bond financing, which was appealing because of its leverage, proceeds, and 5 years of interest only.
June 21, 2017
George Smith Partners arranged the acquisition financing for a single tenant office located in the downtown area of a top Southern California market. The tenant is a private technology company that has 2 years remaining on their lease term. Due to the short lease term, GSP structured in reserves for tenant improvements, leasing commissions, and interest payments in the event that the tenant decides to vacate. If the tenant signs a new lease, the reserves that were held back will be released to the Sponsor. The lender was able to get comfortable with funding the reserves since the tenant is currently paying below-market rents and the property should see an increase in value with higher implemented rents at lease expiration. The financing has a 3-year term and carries a 5-year extension option that can be executed once the tenancy has been finalized and certain financial metrics have been realized. The recourse loan has an initial funding of $8,990,000 and is sized to 70% of total cost, floating at a rate of 2.75% over the one month LIBOR. The additional future funding for re-tenanting the building is not charged interest until drawn.
June 14, 2017
George Smith Partners successfully arranged a $5,275,000 non-recourse, 7-year fixed rate, non-CMBS loan for a non-anchored retail center in Imperial Beach, CA. While the property is 100% occupied in a coastal California location, the Sponsor needed a non-recourse loan with a flexible prepayment penalty on a long-term fixed rate basis which is extremely hard to locate outside of CMBS. Life insurance companies were not able to get comfortable with the collateral since the largest tenant was a is a non-credit gym and there is significant near-term lease roll. Other bank lenders would not provide full credit for the significant cell tower income which limited their loan proceeds. GSP was able to identify a typically recourse lender that was willing to provide a non-recourse loan on this property and was able to underwrite the full cell tower income.
June 14, 2017
George Smith Partners facilitated the seven-year fixed-rate construction loan for the ground-up development of 60 Los Angeles “For Rent” housing units. As part of this capitalization, GSP placed the land acquisition debt in 2015. Sized to 75% of actual development costs, this institutional capital provider will fund all draw requests at the 4.0% rate that was locked at application. Interest is paid as drawn; there is no negative arbitrage. The ten-year term negates the need to process a mini-perm upon Certificate of Occupancy and removes future interest rate risk. The recourse loan is fixed for seven years at 4.0% and floats at 275 over LIBOR for the remainder of the ten-year term. Prepayment steps down; 2,2,1,1 open.
$3,700,000 Refinance for “Single Tenant” Subleased Retail Property in Mid-Atlantic Secondary Location
June 7, 2017
George Smith Partners arranged a $3,700,000 loan for a non-credit tenant that subleases a significant portion of the space. The tenant is a middle market grocery chain recently acquired by a hedge fund. The formerly public company is now private with no financials available. The 31,000 square foot grocery store tenant subleases 8,000 square feet to an office supply store. The challenge was finding a lender that could be comfortable with 8 years left on the lease (and the co-terminus sublease) in a secondary location with no continuing sales available. GSP sourced a lender with local expertise that got comfortable with the historic sales that were reported prior to the tenant’s acquisition. The short amortization and recourse were also risk mitigates.
June 7, 2017
George Smith Partners secured $10,500,000 non-recourse acquisition permanent financing to purchase a 216-unit, 1970s vintage multifamily property in Jacksonville, FL. The six building property sits on a 12-acre site and is well located near the Oakleaf Town Center. Amenities include swimming pool, fitness center, and a playground. The sponsor acquired the property to take advantage of an opportunity to upgrade units and increase rents. Proceeds included $402,000 for interior unit improvements, exterior improvements, and exterior deferred maintenance. GSP sourced a Capital Provider who underwrote pro forma expenses by recognizing the incoming property management company’s track record for efficiently managing similar properties in the market.
Amortization: 3 Years Interest Only: 30 Year Amortization thereafter
Term: 12 Years
Prepayment Penalty: Yield Maintenance for 11 Years 6 Months
Lender Fee: Par
$11,500,000 Non-Recourse Refinance of a Recently Stabilized Los Angeles County Shopping Center Anchored by a National Discount Retailer and Shadow Anchored by a Regional Grocer
June 7, 2017
George Smith Partners successfully placed $11,500,000 of non-recourse, ten-year fixed rate first mortgage debt for the refinance of a 60,000 square foot multi-tenant retail property anchored by an investment grade rated discount retailer and shadow anchored by a successful regional ethnic grocer. The property was 99% leased at loan closing, but only 79% occupied as three new tenants were in a four month build out and free rent period. GSP worked with the lender to avoid a capitalized hold back of over $2,000,000 as the new tenants’ income was included in the underwritten income, but was not being collected yet. Instead GSP negotiated a structured a nominal six month rent and expense reserve held back at closing and released pro rata to Sponsor as the new tenants open for business.
The lender became comfortable with this structure due to a combination of positive factors including a having a highly experienced sponsor, strong shadow anchor sales, below market rent for the anchor tenant with fixed low renewal rates, and a rent roll with over 50% investment grade rated tenancy. The 4.59% fixed coupon loan is sized to an 8.0% debt yield and 1.25x debt coverage ratio and the 10-year term is interest only for the first five years, with a 30-year amortization schedule thereafter.
April 19, 2017
George Smith Partners placed a $7,500,000 refinance of two special use, unanchored multi-tenant retail properties located in the City of Industry. A sizable return on equity (142% of total capitalization) was permitted due to our Sponsors’ 20 year ownership and management history of the asset. This transaction was structured as senior debt funded at $4,300,000 and a $3,200,000 crossed-collateralized stand-by line of credit. Both vehicles were funded by the same capital source. Due to the special-use tenant mix, the senior debt was sized to 60% LTV and priced at Prime plus 1% fixed for five years and amortized over 25 years, while the credit line will float at Prime plus 1.5% for two years. Interest is only paid on funds drawn. There is no prepayment penalty for either tranche.
Special use tenancy at both properties is subject to a CC&R review by the local municipality at the end of 2017. One tenant who occupies 20% of the net rentable square feet went dark and vacated the property during the due diligence process.
GSP identified a regional lender that understood the market and was eager to build a relationship with our Sponsor, who has impressive real estate holdings, a long track record of execution and significant financial strength. By demonstrating that market rents and occupancy levels still allowed for significant debt service coverage, GSP was able to assist the lender in gaining comfort with the properties’ specialty-use and uncertain occupancy future.
Rate: Senior Loan – Prime + 1%; Line of Credit – Prime + 1.5%
Term: Senior Loan – 5 Years; Line of Credit – 2 Years + Extensions
Amortization: Senior Loan – 25 Years; Line of Credit – Interest Only
DCR: Senior Loan – 1.25x; Line of Credit – 1.5x
Lender Fee: 0.75%
April 12, 2017
George Smith Partners secured $5,625,000 in proceeds for the purchase of a 9,585 square foot, 12-unit multifamily property located in Malibu, CA. The loan is fixed at a rate of 3.95% for 5 years, then floats thereafter at 12 month LIBOR plus 2.5% for 10 years. The loan represented $468,750 per unit.
First, the buyer was purchasing the property at a very high price per unit. Second, the property had been fully renovated by the seller and only had six months of operating history. At the time of application, one unit was vacant and four units had short-term leases, including two units leased to corporate tenants. The seller was receiving rents that averaged over $6.00 per square foot which is common in Malibu, but much higher than most locations in Los Angeles. Finally, the property was located on the inland side of the Pacific Coast Highway and had a steep slope at the front of the property, which caused some lenders to be concerned with earthquake risk.
GSP was able to source a lender that was comfortable with all of the unique aspects of the deal. Although the selected lender had an LTV maximum of 50%, proceeds were considerably higher than other lenders which were constrained by a cap on loan per unit. Also, GSP was able to source rent comp data that showed the in-place rents were well supported. Thus, the lender was willing to provide a term sheet even with the vacant unit and short-term leases in place. Additionally, a previous owner had performed an extensive seismic retrofit on the property, which eliminated the need for earthquake insurance. Once in application, the loan closed in approximately 30 days.
$13,000,000 Los Angeles Ground-Up 59 Unit Multifamily Construction w/ Take-Out Fixed @ 3.20% at Commitment
March 22, 2017
George Smith Partners successfully structured the ground-up construction debt for a mixed-use 59 unit multifamily Los Angeles rental project that will include 2,000 square feet of ground floor retail. GSP identified a regional construction lender with a very unique construction & permanent loan in one package; the first five years are fixed @ 3.20%, inclusive of the construction phase. Interest is only paid on funds as drawn; there is no negative arbitrage for this fixed rate construction loan. The ten year term was sized to 63% of actual cost and Phase 1 of the loan will be interest only funded through a reserve until stabilized, which is estimated to be 30 months from ground-breaking. Upon lease-up, the loan automatically converts (Phase 2) to a mini-perm for the remainder of the five year at the same fixed rate at 3.20%, amortized over 27.5 years. Upon expiration of the initial five year term, the loan will float at 250 basis points over LIBOR for the remainder of the ten year term. Repayment guarantees burn down to 50% of the outstanding loan balance upon Certificate of Occupancy and drops to zero after the second year of stabilization. There are no additional fees or resizing tests at loan conversion from construction to mini-perm. Prepayment steps down: 2/2/1/1, with no prepayment penalty after the fourth year.