$7,000,000 Non-Recourse Financing for a Single Tenant Investment Grade Retail Property in Suburban Northern California
February 22, 2017
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.
February 22, 2017
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%.
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 8, 2017
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.
$28,500,000 Non-Recourse Acquisition Financing on a Newly Stabilized Class-A 208 Unit Multifamily Property in Dallas, Texas
February 8, 2017
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
Lender Fee: Par
Exit Fee: 4-years Yield Maintenance, step down pre-pay thereafter 1.0%, 0.5%, open.
Amortization: 1-Year Interest Only, 30-Year Amortization thereafter
January 18, 2017
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.
(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.
(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.
January 4, 2017
George Smith Partners arranged $2,546,000 in permanent debt for a five-unit luxury multifamily project in Hollywood, California. The property received certificate of occupancy and was fully leased as the construction loan neared its term. Built adjacent to Paramount Studios, luxury rentals of this quality are not common in the area. Although the property recorded full occupancy, due to its limited operating history and lack of comparable properties, securing the fully requested proceeds was challenging. In order to retain proceeds for our Sponsor, GSP supported the high dollar per unit loan request with substantial market data. Sponsor secured 100% of total construction cost financing at an interest rate of 3.61% fixed for five years with 15 years floating thereafter.
December 14, 2016
George Smith Partners successfully arranged the refinance of an 88-unit apartment building in a tertiary Southern California market. This loan was used to repay the existing debt, pay off a small prepayment penalty, and cover all closing costs. Fixed for 10 years at 3.25%, prepayment is structured as a yield maintenance calculation. This Capital Provider offered a 90 day rate lock with no additional charge and when the 10 Year Treasury Yield surged 73 basis points, our Sponsor saved $500,000 in potential interest costs throughout the life of the loan. The guarantee was structured as a top level 20% recourse.
Rate: 3.25% fixed
Term: 10 Years
Amortization: 30 Years
Prepayment Penalty: Yield Maintenance
Recourse: 20% top level recourse; 80% Non-Recourse
Lender Fee: 0.50%
- Advisors: Jason Gaffner
December 13, 2016
George Smith Partners placed the $41,000,000 acquisition debt of a Class A 300 unit multifamily in Colorado Springs, Colorado. At the time of inspection, only one unit was available for lease. With the US Air Force Academy and Lockheed Martin located in Colorado Springs, employment drivers include a notable concentration of military and military related jobs. Lender concerns over the potential of transitional employee postings was mitigated with a long historical occupancy above 95% and a resident concentration of less than 6% of active duty personnel. Sized to 75% of the purchase price, the full coupon (index + spread) was locked just prior to the run up in Treasuries. Fixed for 12 years at 4.31%, the first nine years of the loan are Interest Only before rolling into a 30 year amortization schedule. The non-recourse loan carries a yield maintenance prepayment penalty but does allow for future advancements subject to the current LTV and debt coverage constraints.
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.
November 2, 2016
George Smith Partners placed $2,100,000 in permanent financing on a two-property multifamily portfolio for a Los Angeles-based operator. Located in Studio City, California and Austin, Texas, the properties were financed by a single capital provider that provided un-crossed loans. Sized to 70% of appraised value for Studio City and 75% for Austin with a 1.20 DCR for both properties, the loans self-liquidate over 30 years. Fixed for five years at 3.5% for Studio City and 4.0% for Austin, rates will reset and float at 300 over 1-Year Treasuries for the remaining 25 year term. GSP sourced a Lender confident with both markets and willing to provide permanent loan execution with no prepayment penalty. The loan also provided for a net $1,000,000 return of equity to the Sponsor.
Rate: 3.5%/Studio City, CA; 4.0%/Austin, TX fixed for 5 years.
Term: 30 Years
Amortization: 30 Years
LTV: 70% for Studio City, CA; 75% for Austin, TX
Prepayment Penalty: None
- Advisors: Zachary Streit
October 26, 2016
George Smith Partners placed $33,000,000 in permanent financing for a nine-property multifamily apartment portfolio in Los Angeles for a local owner/developer. The portfolio was split between two capital providers into nine separate uncrossed loans that closed concurrently. Sized to 75% of appraised value and a 1.20 DCR, the loans all self-liquidate over 30 years. Fixed for five years at 3.15%, rates will reset and float at 235 over LIBOR for the remaining 25 year term. A step-down prepayment is underwritten and opens without penalty after the third year.
With unrelated open acquisition escrows pending, our Sponsor required an aggressive portfolio capital provider who would maximize a return on equity while demonstrating the ability to close quickly and as applied for. Market interest rate volatility added concerns as loan proceeds were limited by cash flow.
George Smith Partners sourced two unrelated portfolio lenders that underwrote for a net $5,000,000 in return of equity. Post BREXIT vote, GSP advised the Sponsor to early rate lock to mitigate market risk exposure from additional volatility. Our capital providers funded all nine transactions within Sponsor’s requested time frame at an historically low coupon. (Rates bumped up one week after locking, but prior to loans funding).