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.
$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.
$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.
$11,700,000 Non-Recourse Acquisition Financing on a San Diego County Shopping Center with Near-Term Anchor Roll
May 10, 2017
GSP successfully placed $11,700,000 of non-recourse, ten-year fixed rate first mortgage debt for the acquisition of a 75,000 square foot Southern California multi-tenant retail property anchored by a regional Hispanic grocer and national discount retailer. The 1970’s vintage property is 100% occupied and the two 25,000 square foot anchor tenants who comprise 67% of total collateral square footage. The national discount retailer pays below market rent and its lease expires in 2018 with no renewal options, providing significant potential upside for equity and cash flow risk for debt. GSP highlighted strong anchor sales and an experienced sponsor with extensive retail tenant relationships in order to get the lender comfortable sizing to a 7.7% debt yield. The non-recourse loan has a 4.52% fixed coupon and the 10-year term is interest only for the first five years, with a 30-year amortization schedule thereafter.
$11,845,000 Non-Recourse Acquisition and Reposition Financing up to 75% of Cost on a Non-Cash Flowing Retail Property in Los Angeles
April 19, 2017
George Smith Partners arranged an $11,845,000 first mortgage on a value-add retail property with no cash flow located along the main retail corridor of one of the hippest neighborhoods in Los Angeles. The national balance sheet lender provided a non-recourse loan to up to 75% of total project cost including 100% of future capital expenditure funds to gut renovate the asset and convert the property to high-end retail plus an addition of four apartment units. Due to the lack of cash flow, the lender structured a 20-month interest and carry reserve to cover debt service during the reposition period. Over 50% to total loan proceeds are allocated for future funding. Interest is not charged on funds until drawn.
Rate: 30-Day LIBOR + 6.00%
Term: Three years plus two 12-month extensions
Amortization: 24 months interest only; 25-year amortization thereafter
Max Loan to Cost: 75%
Prepayment: 15-month lockout; open thereafter subject to 1.00% exit fee
Lender Fee: 1.00%
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 3, 2017
George Smith Partners secured a $8,200,000 private money bridge loan to enable the renovation and re-tenanting of an un-anchored retail shopping center in Orange County, CA. The loan included over $1,500,000 of cash out to the sponsor at closing as well as $600,000 for future tenant improvements and renovations.
The sponsors requested maximum cash-out proceeds that dissuaded many capital providers. Additionally, several tenants were in the process of significantly upgrading their spaces and had unfinished renovations in place. Finally, the project had unsettled legal issues with one of the major tenants.
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.
$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.
March 22, 2017
George Smith Partners arranged $5,000,000 for the acquisition of a newly constructed, 17,200 square foot single tenant build-to-suit Rite Aid. Our Sponsor was focused on minimizing monthly debt service costs plus maintaining prepayment flexibility. The proposed Rite Aid acquisition by Walgreens and the tertiary market location added levels of complexity to the transaction. After evaluating the firm’s extensive lending relationships, GSP sourced a regional lender experienced with this location and comfortable with Sponsor’s financial strength, track record, and personal guarantee. The loan is fixed at 4.75% for five years with a 30-year amortization schedule, sized to a 1.20x DSCR, and is open to prepayment at any time. The lender charged a nominal fixed $2,500 cost for loan processing and documentation.
Rate: 4.75% fixed
Term: 5 years
Amortization: 30 years
Prepayment Penalty: None
Lender Fee: 0.50%
- Advisors: Loren Bedolla
March 15, 2017
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.
March 1, 2017
Transaction Description: George Smith Partners successfully arranged the combined $63,400,000, 83% of total cost, non-recourse, construction financing for a 312 unit, 19 story high-rise, Class-A Multifamily over retail project in the downtown area of a major Southwestern MSA. The subject property will be located near major universities, offices, restaurants, and a growing arts district. This project represents one of the highest quality, most amenitized, and dynamic rental projects in this region.
Challenge: The Sponsor requested high leverage, non-recourse, construction financing on an asset class that at the time, and in this market, was a non-starter for most capital providers. The Sponsor had limited experience in the development of this specific asset class and was seeking leverage at a level that was a challenge for a single lender to get comfortable with.
Solution: GSP was able to demonstrate the compelling economics at the project level by showing the pent-up demand for this project type in this specific market, highlighting the barriers to entry with limited available land, and the singular quality of the location with proximity to places of employment, graduate level education, and a light rail line. The capital providers who stepped up, understood the value of this location, the cost basis and the Sponsor’s ability to deliver a product that is superior to competing properties in the market. The senior lender and third party mezzanine lender did not have an existing inter-creditor agreement in place prior to this transaction, but successfully structured an agreement. The final borrowing structure involved multiple entity-level-only guarantors for the limited guaranties that were required. GSP also assisted with two separate interest rate caps provided by a third party rate cap provider and placed with two separate institutions to protect from anticipated floating rates.
Rate: Terms are confidential
Term: 3 Years Plus 1 Year Extension
Amortization: Interest Only
- Advisors: Scott Meredith
$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.