Perm

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    $7,500,000 Cash-Out Refinance Senior and Stand-By Line of Credit

    April 19, 2017

    Transaction Description
    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.

    Challenges
    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.

    Solutions
    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
    LTV: 60%
    DCR: Senior Loan – 1.25x; Line of Credit – 1.5x
    Recourse
    Lender Fee: 0.75%

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    $5,625,000 Acquisition Loan for Trophy Multifamily Asset in Malibu

    April 12, 2017

    Transaction Description
    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.

    Challenge
    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.

    Solution
    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.

    Term: 15 years
    Rate: Fixed for 5 years at 3.94%, followed by floating at 12 month LIBOR plus 2.5%
    Amortization: 30 years
    Prepayment Penalty: 3,2,1
    LTV: 50% maximum
    DCR: 1.20
    Origination Fee: Par
    Guaranty: Recourse

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    $13,000,000 Los Angeles Ground-Up 59 Unit Multifamily Construction w/ Take-Out Fixed @ 3.20% at Commitment

    March 22, 2017

    Transaction Description

    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.

     

    Rate: 5 Years Fixed @ 3.20%; then LIBOR+2.50%:
    Term: 120 Months (Construction & Perm)
    Lender Fee: 1%
    LTC: 63.0%
    Prepayment Penalty: 2,2,1,1,open
    Recourse: Burning down to 50% at C of O and zero after the 2nd year

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    $1,075,000 Multifamily Cash-Out Refinance with Significant Return of Equity at a 3.70% Fixed Rate for 5 Years

    March 15, 2017

    Transaction Description:

    George Smith Partners arranged a $1,075,000 cash-out refinance, including a 65% return of equity, at a 3.70% fixed rate on a multifamily property located in West Hollywood, CA.  The sponsor, a Los Angeles based owner-operator, purchased the property less than two years ago and turned approximately half the units in the intervening period.  Despite the limited ownership and lease seasoning, the Sponsor sought maximum cash-out proceeds to capitalize on the value unlocked through unit turns and to make new acquisitions.  The sponsor also sought a fixed rate permanent loan to hedge against rising interest rates and a flexible prepayment structure to allow for a subsequent near-term refinance or sale, as additional value is unlocked through unit turns.  GSP sourced a lender familiar with the market and underscored the submarket, the property’s additional upside and sponsor’s track record, which ultimately allowed the lender to get comfortable with the large return of equity.  Sized to 65% of appraised value with a 1.20 DCR, the loan provided for a net return of equity of $425,000 to the sponsor.  The loan, which carries a 15 year term and amortizes over 30 years, is fixed at 3.7% for the first 5 years of the term and then resets and floats at 300 basis points over 1-Year Treasuries for the remaining 10 year term.  Sponsor’s application rate lock of 3.7% shortly after the election last year was honored by the lender, even though rates have moved significantly in the interim.  Although the loan provides the benefit of a fixed rate, it carries no prepayment penalty.

    Rate: 3.7% fixed for 5 years
    Term: 15 Years
    Amortization: 30 Years
    LTV: 65%
    DCR: 1.20
    Prepayment Penalty: None
    Recourse

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    $30,000,000 Non-Recourse Cash-Out Refinance of 156,000 SF Retail Center in Los Angeles

    March 15, 2017

    Transaction Description:

    George Smith Partners secured $30,000,000 in proceeds for the non-recourse cash out refinance of a 156,000 square foot retail shopping center located in Los Angeles. The loan is fixed at a rate of 4.91% for a period of 10 years and offers 5 years of interest only payments. A number of challenges were encountered while marketing the deal. The property is anchored by a major grocery chain, but the lease rolls in 5 years. Several other tenants also roll within 5 years. Additionally, the property location is in a secondary area of greater Los Angeles. However, the borrowers had successfully kept the property at or near 100% occupied for the last several years due to the prominent visibility of the center along a high-traffic street. Finally, sales data was only available for the grocer and one of the separate pads. The owners did not have sales data for the other 20 tenants. GSP sourced a CMBS lender that was not only comfortable with each of these risks, but underwrote the transaction aggressively. The selected lender gave credit for rent increases coming within the next year and used a 3% vacancy rate, resulting in higher underwritten income. The lender was able to size the deal to a 7.75% debt yield, whereas most CMBS lenders would need a minimum 8% debt yield. This resulted in the selected lender providing proceeds of nearly $1,000,000 more than any other lender. Since the buyer had invested considerable amounts in capital expenditures and completed major upgrades in the past three years, the lender was able to underwrite to lower replacement reserves as well as lower tenant improvement and leasing commissions. The loan closed in about 40 days from the time it went into application.

     

     

    Term: 10 Years
    Rate: 10 Year Swap + 2.53% (4.91%)
    Amortization: 5 years IO followed by 30 year amortization
    Prepayment Penalty: Defeasance
    LTV: 65%
    Debt Yield: 7.75%
    DCR: 1.23
    Origination Fees: Par
    Guaranty: Non-Recourse

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    $1,420,000 in Acquisition Financing for Credit Single Tenant Building

    March 8, 2017

    Transaction Description:
    George Smith Partners secured $1,420,000 in acquisition financing for a single tenant building in Atwater, California. The tenant is a national bank with a strong credit rating and has seven years remaining on the lease with extension options available. The Sponsor wanted to put long term fixed-rate financing on the property. GSP was able to identify a capital source that would provide a 10-year term, even though the tenant rolls within that period. The interest rate is fixed at 4.375% for the first 6 years of the loan. The rate then resets and is fixed again for the last 4 years, with a maximum increase of 50 basis points above the original rate (4.875%). This ensures that the Sponsor has a fixed rate throughout the entirety of the 10-year term, and eliminates interest rate risk. Loan proceeds were constrained by a 1.25x DSCR on a 25 year amortization.

    Rate: 4.375% Fixed for first 6 years; 4.875% Fixed for final 4 years
    Term: 10 Years
    Amortization: 25 Year Amortization
    LTV: 61%
    Recourse
    Lender Fee: None

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    $7,000,000 Non-Recourse Financing for a Single Tenant Investment Grade Retail Property in Suburban Northern California

    February 22, 2017

    Transaction Description:

    George Smith Partners successfully placed ten year fixed rate financing on a single tenant retail property located in Northern California. The building is occupied by a national drug store tenant on a 75 year lease with a 2032 termination option. The tenant signed a fixed rate lease at the top of the market in 2007 but reported year over year sales decline since 2012 due to increased competition in the trade area. These two factors resulted in a high occupancy cost. GSP identified a national lender able to underwrite the tenant’s full rent because of the lease’s long-term investment grade characteristics, despite the high current occupancy cost. Additionally, GSP highlighted the recent closure of another drug store in the trade area that will increase the tenant’s market share going forward and increase sales. The loan structure includes five years of Interest Only payments to maximize Sponsor cash flow, then converts to a 30-year amortization schedule. The 67% leverage loan has a fixed rate coupon of 4.87% for the 10-year term.

    Rate: 4.87% Fixed
    Term: 10 Years
    Amortization: 5 Years Interest only; 30 Year amortization thereafter
    LTV: 67%
    Guaranty: Non-Recourse
    Lender Fee: None

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    $4,950,000 Refinance of Retail Center Interest Only @ Low 4%

    February 22, 2017

    Transaction Description:

    George Smith Partners secured $4,950,000 for the refinance of a 20,020 square foot retail strip center located in Los Angeles, California. The Sponsor requested a rate and term refinance and was not interested in maximizing leverage. Accordingly, GSP was able to source a Lender known to compete aggressively on rate for lower leverage deals. Additionally, the property had two units located in a high-visibility corner pad, while the remaining units were inline strip space. The corner pad was leased at rates considerably higher than the inline space. Although it was challenging for the Lender and appraiser to support the higher rents of the corner pad, GSP provided extensive rent comparable data for freestanding pads in the submarket. Underwritten cash flow and property value were well supported and the Lender maintained originally quoted proceeds. Loan is fixed at 4.28% for 5 years, then floats at 6 month LIBOR plus 2.35%.

    Term: 10 years
    Rate: Fixed for 5 years at 4.28%, followed by floating at 6 month LIBOR plus 2.35%
    Amortization: 30 years
    Prepayment Penalty: 5,4,3,2,1
    LTV: 65% maximum
    DCR: 1.45
    Origination Fees: Par

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    $10,390,000 Non-Recourse Permanent Financing for Office in Central California

    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.

    Rate: 5.11% Fixed
    LTV: 68%
    Term: 10 Years
    Amortization: 30 Years
    Interest Only: 3 Years
    Non-Recourse

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    $9,550,000 Cash-out Refinance Loan of 53-Unit Multifamily @ 3.85%

    February 8, 2017

    Transaction Description:
    George Smith Partners secured $9,550,000 in proceeds for the cash-out refinance of a 53 unit apartment building located in Los Angeles. The loan is fixed at a rate of 3.85% for a period of 7 years, then floats at 12 MAT + 2.75% with a floor of 3.85%. The 30-year loan offers 3 years of interest only payments followed by a 27-year amortization schedule. A challenge occurred when it was discovered that the property is located in a special study zone on the Hollywood Fault Line. As a result, some lenders declined the deal entirely, while others required a PML report and earthquake insurance depending on the result. GSP was able to source a lender that did not require a PML or other third party reports, which saved the borrowers a great deal of time and expense. The loan also went into application in mid-November at a time when most lenders’ rates had already jumped by 25 basis points or more. The lender accommodated the borrower by holding the rate long enough to allow the borrower to quickly lock in an extremely competitive rate.

    Term: 30 years
    Rate: Fixed for 7 Years at 3.85%, followed by floating at 12 MAT + 2.75%
    Amortization: 3 Years Interest Only, followed by 27 Year amortization
    Prepayment Penalty: 2.5%, 2.5%, 2.5%, 2.5%, 2.5%, 1%, 1%
    LTV: 65%
    DCR: 1.15
    Origination Fees: Par

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    $28,500,000 Non-Recourse Acquisition Financing on a Newly Stabilized Class-A 208 Unit Multifamily Property in Dallas, Texas

    February 8, 2017

    Transaction Description:
    George Smith Partners successfully structured non-recourse acquisition financing on a 2015 constructed Class-A multifamily property coming out of lease up in Dallas, Texas. The property is located in a submarket with rising concessions and flattening rents due in part to significant supply coming online and seasonality. In order to provide the best execution for the sponsor in an unstable credit market, GSP identified a balance sheet lender whose confidence in the strong macro-market fundamentals allowed them to size the loan to a 7% in place debt yield despite the lack of operating history. The lender did not require an appraisal and locked rate at loan application, which minimized execution risk in a volatile interest rate environment. The seven year loan has a fixed coupon at the 7-year Treasury plus a spread of 1.95%, with one-year interest only before converting to a 30-year amortization schedule, allowing the borrower to maximize cash flow while the property continues to stabilize and concessions burn off. The loan has a flexible pre-payment schedule with four years yield maintenance then converting to a step down pre-payment schedule of 1.0%, 0.5%, 0.0% for the remaining three years of the loan term.

    Rate: 7-Year Treasury + 1.95%
    Term: 7 Years
    LTV: 55%
    Lender Fee: Par
    Exit Fee: 4-years Yield Maintenance, step down pre-pay thereafter 1.0%, 0.5%, open.
    Non-Recourse
    Amortization: 1-Year Interest Only, 30-Year Amortization thereafter

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    $10,141,000 Equipment Cash-Out Refinance for an Aerospace Machining and Assembly Company

    January 18, 2017

    Transaction Description
    George Smith Partners closed a $10,141,000 equipment financing loan with cash-out for a repeat client. After successfully placing two non-recourse loans on two industrial buildings for the client, GSP was engaged to help consolidate several higher interest loans on their equipment and get cash-out for re-investment. Prior attempts by the borrower to refinance the equipment with cash out on their own were not successful.

    Challenges
    (1) Lenders are dissuaded when it comes to cash-out, especially if the request is significant relative to the collateral value. (2) Under SBA 504c, equipment is required to have a useful life greater than 10 years to qualify. The appraisal indicated approximately 35% of the equipment had a useful life of 8 years. This resulted in almost $4.6M lost in value and would have required the borrower to bring in cash to close versus getting cash-out.

    Solution
    (1) GSP recognized the “owner-user” attributes of the borrower and how the equipment was used. They identified that the transaction would be eligible for the SBA 504c program which would allow for cash out and carry a lower interest rate. Additionally, GSP worked with an aggressive bank that was comfortable underwriting a loan secured by equipment and not the real estate (2) GSP highlighted to the lender that an experienced in-house maintenance crew was actively servicing the equipment and demonstrated that useful life would be well over 10 which increased the value of the equipment by $4,600,000 and allowed for cash-out. The bank loan and SBA loan carries a blended rate of 4.72%, saving the borrower approximately $1,000,000 in interest costs annually.

    Rate: 4.72% Blended
    Term: 1st- 10 Years; 2nd – 10 Years
    Amortization: 10 Years
    Loan to Orderly Liquidation Value: 74%
    Loan to Fair Market Value (FMV): 62%
    Recourse