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.
November 2, 2016
George Smith Partners arranged $16,800,000 for the rate & term refinance of a 91,000 square foot retail center anchored by a national movie theater. Located in the Inland Empire submarket of Los Angeles, this tertiary market location added a level of complexity for this special use retail asset. Our Sponsor sought to reduce monthly debt service yet maintain prepayment flexibility. The movie theatre operator is a privately held company and provided limited financial information for underwriting, but GSP sourced a regional lender experienced with this location and comfortable with Sponsor’s financial strength, track record and guarantee. Floating at 0.50% over WSJ Prime, the three year debt is sized to 65% of value with a 25-year amortization schedule and does not carry a prepayment penalty.
Rate: WSJ Prime + 0.50%
Term: 3 years
Amortization: 25 years
Prepayment Penalty: None
Lender Fee: 0.25%
- Advisors: Loren Bedolla
September 14, 2016
Transaction Description: George Smith Partners placed the $5,000,000 refinance of a 1079 unit self-storage facility located in the Pacific Southwest. George Smith Partners was engaged as the in-place debt opened to prepayment and our Sponsors sought to reduce their current 6.75% coupon while recapitalizing their partnership. Sized to 48% of appraised value, this financing returned over $500,000 of equity to the Sponsor. Funded as a Prime plus execution, the loan was synthetically fixed with a SWAP and locked at 4.35% for ten years, amortizing over 25 years. As a Prime based loan, there was no prepayment penalty although there is the potential for a SWAP breakage fee.
Challenges: The self-storage property is in a sub-market that has been slow to recover from the economic downturn, historically operating below break-even coverage. To achieve requested proceeds and cover the existing debt, capital providers needed to look past historic cash flow and focus on trailing 3 month collections.
Solutions: George Smith Partners promoted the significant operational turnaround since the instillation of a new management company. George Smith Partners then identified a portfolio lender that vetted and underwrote the new operator, allowing them to model the recent cash flow to secure the requested proceeds. A higher than expected appraised value and Sponsors’ financial strength further solidified the return of equity.
September 7, 2016
George Smith Partners secured the $1,440,000 acquisition loan for two non-contiguous commercial properties for the same Sponsors. Our Sponsors, two physicians that will relocate their practice into the first space, did not qualify for an SBA execution as they will occupy less than 50% of net rentable. Traditional institutional capital providers pushed back on the non-contiguous collateral and not currently zoned for medical office occupancy, adding entitlement risk to the structure. George Smith Partners identified a lender that exclusively underwrites medical professionals. Their expertise allowed for a 20% increase the Sponsors’ underwritten global income and provided an increase in net loan proceeds to the funded 80% of cost. Fixed for 7 years at 3.8%, a 25 year amortization was negotiated (versus the traditional 20 year amortization usually offered), with a three year step-down prepayment.
Term: 7 years
Rate: Fixed at 3.8%
Amortization: 25 years
Prepayment Penalty: 3,2,1, open
Lender fee: 0.25%
Advisors: Shahin Yazdi
- Advisors: Shahin Yazdi
August 24, 2016
George Smith Partners placed the no-cash-out refinance of a 12 single family rental portfolio; coined as horizontal multifamily residences. The non-contiguous properties are held by a 501c3 and are deed restricted to be leased as exclusively as affordable units, charging well below market lease rates. Our Sponsor’s objectives were to significantly reduce their interest rate and extend their current loan balloon date. Deed restrictions also precluded the return of any equity. There was no warm-body available to guarantee including carve-outs. This is a completely non-recourse loan. Fixed for five years at 4.75%, the loan will recast at prevailing rates for a second five year term at the five year CMT + 3.50% and float for the remaining 20 year term. There is no balloon for this 30 year self-liquidating loan.
March 4, 2016
Transaction Description: George Smith Partners successfully sourced the senior debt for the acquisition of a 39,000 square foot, 79% occupied on-campus Medical Office Building in Gardena. Sized to 70% loan to value, the loan is fixed for 5 years at 4.25%, amortizing over 25 years, with 1 year of interest only. Mr. Yazdi was able to negotiate a four year prepayment structure as well as the ability for our sponsors to pay down up to 20% of the loan every year without incurring a penalty. The loan also includes a one-time future earn-out once our sponsors obtain 90% occupancy and a Trailing 3 month P&L at a 1.35x DCR within the first year.
Challenges: The property’s master lease to a Hospital had expired a year before our clients purchased the building, and many of the tenants were on MTM leases or had no lease at all. The property was 79% occupied when we got into application and there was also a significant amount of tenant turnover throughout the loan term. Lastly, our borrower did not have any experience owning and operating medical office.
Solution: Mr. Yazdi worked diligently with the current management company in obtaining Estoppels/SNDAs and negotiating a few lease extensions with current tenants. Mr. Yazdi also focused on the strength of the market and location of the property to get lenders comfortable with the remaining month to month tenants and the current vacancy/low income. By sourcing a lender whose DCR requirement was based on Interest Only payments, we were able to maximize loan dollars while meeting their underwriting guidelines in spite of the property’s low, in-place NOI. He also displayed his client’s financial strength and his willingness to hire a management company in order to make up for his lack of experience.
Rate: 4.25% Fixed
Term: 5 Years
Amortization: Interest Only Year 1 and then Amortized over 25 Years
PPP: 4,3,2,1 with the ability to pay down the Principal by 20% per year without incurring any penalties
DCR: 1.20 Based on Current NOI and Interest Only Payment
November 12, 2015
Transaction Description: George Smith Partners arranged the Preferred Equity financing for the development of 1,500 acres/384-Residential lots surrounding a Ben Crenshaw & Bill Coore golf course. Amenities will include Clubhouse, Tennis Courts and Swimming Pools post development. GSP was retained at the end of 2014 to create the strategies necessary to bring in the remaining capitalization needs of the development. The capital arraigned allows the developer to complete the remaining infrastructure, build out of amenities and deliver the residential lots to buyers for vertical construction. While several capital structures could potentially fulfill this capital request, a Preferred Equity financing structure from a Private Equity group offered the most flexibility and favorable terms. Our Sponsor has already embarked on the remaining infrastructure and lots will be ready for sale mid-2016. Sized to 33% of completed value, financing terms are confidential.
October 1, 2015
Transaction Description: George Smith Partners placed the refinance of a mixed-use commercial property in Durham, North Carolina. The asset consists of residential rental units and a day care/pre-school. Our Sponsor resides in one of the units and operates the pre-school. Excess proceeds were used to buyout an existing partner. Sized to 60% of appraised value, the recourse loan is fixed for 5 years at 6.07% prior to floating for the remainder of the 20 year term. Prepayment penalty is 5% flat for the initial fixed rate term and open thereafter.
Challenge: There were multiple State and Federal Tax Liens filed against the Borrower in addition to other credit issues that reduced the Sponsor’s credit score. The pre-school’s revenues had been declining since 2012, making it difficult for underwriters to accept this business model.
Solution: State and Federal Tax Liens were explained and documented by the Borrower’s Tax Attorney and IRS to gain a better understanding of the Liens. A lien pay-off was structured and additional proceeds were allocated to allow the buyout of the existing partner. Although business revenues had been trending down, there was an increase in enrollment at the end of 2014. This coupled with our Borrower’s plan to cut operating costs support a significantly improved 2015 EBITDA.
September 14, 2015
Transaction Description: George Smith Partners arranged $31,500,000 in permanent financing for a private, non-profit University. The new debt refinanced an existing loan that was originally used to purchase and improve the campus. A regional bank that has financed numerous non-profit educational facilities was quickly identified. Their experience added certainty of execution given the fluctuations in income as a large percentage of their revenue comes from gifts and grants, not just tuition. The tuition cash flow alone did not support the loan request. This capital provider is also able to provide construction financing for future development if the school chooses to add additional improvements to their campus. A 15 year term with a rate reset after the 10th year for the remaining 5 year term provides for flexibility while postponing balloon risk. Fixed for 10 years at 4.0% before the rate reset in year 11, the loan amortizes over 30 years and is full-recourse to the operating University. There is no pre-payment penalty during the term of the loan.
July 23, 2015
Transaction Description: Steve Bram, Allison Higgins and Paul Monsen successfully placed the 58% loan to value refinancing for the 118 bed student housing project in Berkeley, California. The dormitory style configuration is positioned over 6,000 square feet of ground floor retail on Telegraph Avenue near the UC Berkeley Campus. Fixed at 3.91% for 10 years, the non-recourse loan carries a 30 year amortization schedule.
Challenge: Our Sponsors requested a portfolio execution, however the property only had one year of operational history. The dormitory style construction precluded a market tenancy, and the class schedule of the school year yielded multiple months of high vacancy that spiked during the application process.
Solution: GSP effectively demonstrated the Sponsor’s continually increasing NOI and the strength of the location would continue to be a driving factor for higher occupancy. The vacancy bump during the application process resulted from an unusual non-reoccurring circumstance.
June 18, 2015
Transaction Description: George Smith Partners successfully placed the acquisition financing for the purchase of a net-leased automobile sales lot in Southern California. Most capital providers avoid auto related uses due to environmental concerns and the land to improved ratio – the subject is 30% improved compared to the lot size. GSP identified a regional lender who understands auto-use and the underlying land value, and was comfortable underwriting the NNN lease. Sized to 60% of purchase and fixed for five years at 4.75%, the 10 year term amortizes over 20 years for this recourse loan.
$5,500,000 San Diego Quick Close Bridge Loan to Acquire a Vacant Historic Beach Restaurant/Bar Out of Bankruptcy
June 11, 2015
Transaction Description: Poor management and the economic downturn led an iconic San Diego Bar and Restaurant into bankruptcy. The bankruptcy court would only consider quick close, all cash offers to liquidate the real estate. The existing lender was also trying to obtain relief from stay and foreclose. For the project to be successful, an experienced restaurateur with vast market experience and access to immediate cash would be required to take this out of bankruptcy to stabilization. With amply experience working through bankruptcy courts, Mr. Shaffer assisted his client with the bankruptcy laws and developed a capital solution that enabled a quick close, 6 month, acquisition loan that funded in 10 days of the judge’s order. The bridge loan provided 70% of the purchase price at an 8.6% interest only rate.
Challenge: In addition to the timing as mandated by the bankruptcy court, there was no in-place cash flow, significant deferred maintenance and code issues for this special purpose single tenant asset. Certainty of execution was required for this non-operating restaurant in order to preserve the Borrowers’ cash deposit.
Solution: Understanding the challenges of the bankruptcy, GSP quickly demonstrated the intrinsic value of the land as well as the experience and skills of the Sponsors. The primary focus was placed on the sales value of the asset and not the potential cash flow. Our Sponsor had recently achieved a 500% return on a prior transaction in this market for an asset acquired out of bankruptcy.