75% Loan-to-Value Non-Recourse Permanent Financing for a Neighborhood Retail Center in a Tertiary Southwest Market
May 16, 2018
GSP successfully placed $9,867,000 of non-recourse, ten-year fixed rate first mortgage debt for the acquisition of an approximately 100,000 square foot, 1980’s vintage, 97% occupied multi-tenant retail property anchored by a national discount retailer and national drugstore. The anchor leases expire in 2019 and 2020, respectively, and almost 80% of leases at the property roll during the first five years of the loan term. GSP sourced a lender able to achieve 75% leverage non-recourse financing despite the tertiary location, and the loan is structured with an upfront holdback of $275,000 allocated for tenant improvement and leasing commission costs to mitigate near-term tenant rollover.
The 75% leverage non-recourse loan was sized to the greater of an 8.5% debt yield or 1.30x debt service coverage ratio on the 4.91% fixed rate coupon. The 10-year term has one year of Interest Only payments and a 30-year amortization schedule thereafter.
May 2, 2018
George Smith Partners secured $38,750,000 of acquisition financing for the purchase of a retail assemblage in West Hollywood, CA. The Assemblage is currently 100% occupied on month-to-month leases and provides sufficient cash flow to cover all operating and debt service costs. The Sponsor purchased the property with plans to entitle for a mixed-use project which would include condos and a hotel. The lender was able to get comfortable with the entitlement risk due to the Sponsor’s strong track record in the market, the irreplaceable location, and the ability to generate significant additional revenue through already approved billboards. The recourse loan was sized to 62% of as-is LTV, 70% LTC, and is priced at LIBOR + 3.75%. The financing has a 3-year term with a 1-year extension and a stepdown prepayment.
April 25, 2018
George Smith Partners arranged $5,750,000 in bridge financing for the acquisition of a retail building and the refinance of five contiguous office and retail buildings. Together these buildings form half a city block in Burbank, CA. The loan not only allowed for the consolidation of properties, but also provided predevelopment and entitlement capital for the future redevelopment of the city block into a large mixed-use development. Because of the future plans, the Sponsor was charging below market rents and a low cash-flow to value. The 10 year 90%/70% LTC/LTV loan has a fixed interest rate of 4.25% for the first 36 months of the term. Subsequently, the loan transitions to a 1-year ARM set at 2.75% over the 3-year treasury benchmark through maturation. The recourse loan has no prepayment penalty.
The Sponsor required the highest proceeds possible in order to complete the acquisition of the retail building and have enough capital for predevelopment and entitlement expenses for the future mixed-use development. However, the current in-place cash-flow on the five contiguous office and retail buildings severely limited the proceeds most lenders could become comfortable with providing. Additionally, with the impending redevelopment, the Sponsor wanted a loan with no prepayment penalty. Finally, the Sponsor had a tight window to close on the acquisition of the retail building.
George Smith Partners understood based on the in-place cash flow of the five contiguous office and retail buildings, most lenders could not get to the desired proceeds required by the borrower. GSP ultimately utilized its relationships to identify an unconventional lender who used the actual rate rather than an underwriting rate when working through their internal underwriting constraints. As a result, this lender became comfortable with the proceeds number required by the Sponsor. GSP was able to structure the loan to have no prepayment penalty and close the loan timely for the impending acquisition.
Rate: Fixed at 4.25% for 36 months; converting to an ARM for next 7 years at 2.75% over the 3-year treasury
Term: 10 years
Amortization: 30 Years
Interest Only: 3 years
Prepayment Penalty: 2,1
LTC/LTV: 90% LTC/ 70% LTV
Origination Fee: Par
$17,925,000 Refinance; 62%-Occupied Sacramento-Area Retail Center; Below Breakeven Going-In Cash Flow
March 28, 2018
GSP successfully placed $17,925,000 in non-recourse, floating-rate bridge debt on a 62%-occupied, 1960’s vintage, Sacramento-area multi-tenant retail property. Over 55% of loan proceeds were future funded due to significant repositioning of the property, which includes the construction of new retail pads and re-tenanting of a former Kmart suite with two national discount tenants. GSP identified a lender that provided a 75% loan-to-cost bridge loan including a significant earn-out upon stabilization and accepted an entity as carve-out guarantor in lieu of a warm body. The lender structured an interest reserve due to below breakeven going-in cash flow.
The loan priced at 30-Day LIBOR plus 5.15%. Interest is not paid on the unfunded proceeds until drawn.
March 14, 2018
George Smith Partners secured a $9,200,000 private money bridge loan to enable the renovation and re-tenanting of an unanchored retail shopping center in Orange County, California. The loan included $850,000 for future tenant improvements, renovations, and leasing commissions. The non-recourse interest only loan closed in 5 days.
The renovation of the shopping center had experienced significant construction cost overruns and needed another $850,000 for completion. Several tenants were in the process of significantly upgrading their spaces and had unfinished renovations in place. The sponsors also needed to close the loan within a 2-week time frame.
GSP used its experience and relationships to identify a lender who could understand the greater value of the project and was able to demonstrate both the inherent value of the property due to its extraordinary location as well as the future value of the project as completed. As a result, the lender became comfortable with the loan’s basis per square foot and closed the loan in 5 days.
$43,000,000 104% LTC Non-Recourse Construction Financing for Two Large Retail Buildings in the Pacific Northwest
February 21, 2018
George Smith Partners successfully arranged $43,000,000 in non-recourse construction financing for two large single tenant retail buildings in the Pacific Northwest. The two buildings are part of a power center and will each house a national tenant with strong credit and a long-term lease. The blended cost of capital for the two non-recourse loans was fixed at 3.88%, and comprised over 100% LTC. This allowed leverage on the entire shopping center to reach approximately 80% LTC. The term of the loans are 25 and 30 years with 27.4 and 33.1 year amortizations respectively.
This being a challenging market for retail construction financing, traditional lenders could not reach the necessary leverage to finance the high construction costs of Retail Phase 1. Construction costs in Retail Phase 1 were disproportionately high as the onsite and offsite infrastructure work were built out for all future phases of a greater mixed-use development. The two large national credit tenants took up the majority of Retail Phase 1’s GLA. As major anchors of the center, these two tenants will be paying substantially lower rents than the inline retailers thus dragging the NOI of the property down causing further issues with the project’s yield.
Traditional lenders were constrained by Retail Phase 1’s high construction costs and low yields. George Smith Partners realized the best structure for this project was to bifurcate the center and finance the two large national credit tenant buildings separately from the inline space. GSP was able to identify non-traditional bond investors to make highly leveraged, inexpensive, non-recourse construction loans on the two large national credit tenant buildings. By separating the two larger buildings with lower rents from the inline space of Retail Phase 1, a traditional lender could then aggressively lend on the inline space of Retail Phase 1 because of the higher yields from the inline space. This is a result of a smaller concentration of GLA and substantially higher rents.
February 14, 2018
George Smith Partners secured a $4,100,000 permanent cash-out refinance for the 7,105 square foot mixed use property in a tertiary Northern California market. The property contains four ground-floor retail spaces and two upper-floor apartment units. Fixed for five years at 4.46%, the 10-year term loan then floats at 6 month LIBOR + 2.75%. This non-recourse execution is amortized over a 30-year schedule.
GSP encountered several challenges when discussing the transaction with capital providers. The Borrowers requested a 5 year fixed rate loan, but 50% of the retail leases roll within the next two years. Due to the commercial use of the space, most lenders required a 25-year amortization schedule, impacting the cash flow after debt service. The majority of regional portfolio capital providers sought a repayment guarantee to maximize proceeds and/or address the rollover risk.
A small TI/LC reserve was set aside to overcome the near-term lease roll. GSP negotiated a DCR constraint of 1.20, lower than the 1.25 requirement traditionally available in the debt market for commercial and mixed use assets. While under application, the lender agreed to increase proceeds due to underwritten NOI documented above original projections.
February 7, 2018
George Smith Partners arranged $3,700,000 in construction financing to develop 15,860 square feet of retail and office in Old Town Temecula, California. The developer plans to lease the ground and second floor with retail tenants and reserve the 3rd floor for office tenants. The challenges of the financing included the use of EB-5 equity in a spec development within a tertiary market. Our Sponsor desired financing without pre-leasing requirements to take advantage of the demand for this dynamic location during construction. Significant market interest from prospective tenants proved the thesis to the capital provider on a speculative basis.
January 31, 2018
George Smith Partners successfully arranged the $7,850,000 cash-out refinance secured by a 109,059 square foot shopping center in St. Louis, Missouri. Anchored by Marshalls and JCPenney, the 10-tenant shopping center, currently 100% occupied, has two major tenant leases expiring in 2021. Excess loan proceeds will be set aside for future capital upgrades and tenant improvements. Funds are self-directed and not part of a lender established reserve. Sized to 75% of value, the loan was funded prior to receiving SNDA (Subordination, Non-Disturbance, Attornment) or estoppels. A $250,000 holdback will be release upon receipt of SNDAs and estoppels. Fixed at 4.4% for 10 years, the loan amortizes over 25 years with no prepayment penalty. A free five-month rate lock was executed at LOI execution.
January 10, 2018
George Smith Partners successfully arranged the $11,800,000 non-recourse cash-out refinance secured by a 49,942 square foot multi-tenant retail center in Tarzana, California. GSP identified a capital provider who was comfortable with the return of equity given the Sponsor’s team and experience. Sized to 55% of appraised value, 8.75% Debt Yield, and a 1.65x Proforma DSCR. The 10-year interest only note is fixed at 2.25% over the LIBOR 10 Year SWAP rate (4.62% at closing).
January 10, 2018
George Smith Partners secured $17,800,000 of non-recourse bridge debt to refinance the Home Ranch Shopping Center, a 60,500 square foot multi-tenant retail shopping center in Yorba Linda, California. Of the total financing, the lender provided $13,700,000 in initial funding and $4,100,000 in future funding to pay for tenant improvements and leasing commissions. Pre-leasing activity increased significantly during due diligence and the Sponsor was able to bring the executed leasing from 56% to 97%. Once stabilized, the business plan will be to refinance into a CMBS takeout. GSP was able to source a Bridge Capital Provider to get comfortable with refinancing out another bridge loan as well as allocating a favorable basis for the Sponsor by adding in costs invested to-date since the initial purchase. Our Sponsor requested a return of equity upon completion of their business plan and preferred a new capital provider who would provide these funds at a lower fixed rate cost.
December 20, 2017
George Smith Partners secured $4,520,000 funding to refinance a 110,000 sf multi-tenant retail shopping center located in a tertiary market, Center Point, Alabama. The center did not have any credit tenants; the largest tenants were Dollar Tree, Family Dollar and a regional furniture store. GSP was able to show lenders that these tenants were appropriate for the surrounding demographics. The 2.45% fixed coupon loan is sized to 9.0% debt yield and the 10-year term is fixed with a 30-year amortization schedule thereafter.