Rate: Fixed for five years @ 5.0% Re-set 5 year CMT+2.25%
Amortization: 30 years
Origination Fee: ½ point
Recourse: Limited to 20% of the ownership stack
Prepayment Penalty: None
George Smith Partners placed the $11,000,000 take-out of a single-tenant office build-to-suit leased for 10 years to an investment grade GSA tenant located in a secondary Southern California market. The tenant, a Children’s and Family Services office had required security upgrades in the building design and construction. Sized to a 1.25 DCR, loan proceeds netted 80% of the total development cost allowing for a partial recapitalization of Sponsor equity beyond the construction loan. The loan was funded less than two weeks post certificate of occupancy issuance but prior to the tenant opening for operations. Fixed for five years at 5.0%, the loan will reset for the second five year term at the CMT+2.25%. There is no pre-payment penalty.
This capital provider traditionally seeks a personal repayment guarantee from at least 51% of the ownership stack. While the 20% GP would sign, none of the limited partners were available to guarantee. Interest rates moved up post application and the Sponsor sought to close as quickly as possible to preserve his applied for coupon. Although the tenant accepted the space and initiated rental payments, they opted to delay their opening date due to the pending holidays. Our permanent loan lender thus questioned if the property was in fact stabilized without an operating tenant. Security cost improvements were amortized into the ten-year lease.
A waiver was requested and granted that accepted a personal guarantee from the manager who holds 20% of the Borrower. Support from the investment grade tenant furthered the argument for this waiver. To mitigate stability concerns, the construction loan and loan finance costs were paid at funding. The return of equity will be distributed once the tenant is “doors open” and commences operations. Our underwriter reviewed the requirement for the security needs and understood the benefit of the guaranteed cash flow from the credit tenant. The capital adviser agreed to raise their LTV constraint from the applied for 67% LTV to 75% LTV. There was no reduction in loan proceeds.
Senior Vice President
Senior Vice President
Assistant Vice President
October 3, 2018
George Smith Partners arranged $25,000,000 of Mezzanine construction financing and supported the sponsor in negotiating the $80,500,000 senior financing for a speculative, mixed-use, office and retail project located on North Scottsdale Boulevard and Tempe Town Lake in Tempe, Arizona. This phase of the development includes 250,000 square feet of a 15 story, Class A, high rise office space and 44,000 square feet of lifestyle retail space.
Given the perceived historical volatility of the Phoenix and Tempe office markets, and the speculative nature of the business plan, many potential investors were unwilling to take on the risk. Preleasing was critical to the advancement of the Project and to the capital markets. The Senior Lender mitigated the uncertainty by requiring a minimum leasing threshold to be achieved prior to advancing any loan proceeds. However, the local leasing market would not commit to new leases without a committed delivery date.
The Sponsor, with George Smith Partners’ assistance, was able to develop an alternate structure to the Senior Loan. This allowed the Sponsor to fully engage the equity solution and provide a certain completion date to the Lenders and the tenant market.
Construction Loans Temecula: $3,700,000 3-Story Mixed-Use Retail & Office Construction Financing to 67% of Cost
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.
July 9, 2015
Transaction Description: George Smith Partners secured the pre-development and Phase I construction loan for the $240,000,000 Celebration Point mixed-use project in Gainesville, Florida. Comprised of over 1 million square feet of mixed-use retail, office, multifamily and hospitality, tenancy will included Bass Pro Shops, Regal Luxury Theater and the 137-key Hotel Indigo. Located on I-75 and Archer Road, the project will be adjacent to the University of Florida campus. This loan works alongside accommodative bond financing for a portion of the infrastructure and includes features that allow different project elements to be sold during the course of the development process. Phase I is slated to open in the fall of 2016. Sized to 54% of cost, the LIBOR based loan requires a repayment guarantee to the primary Sponsor.
July 24, 2014
7 – 23 – 2014
Transaction Description: GSP placed $6,279,000 of non-recourse financing to complete the construction of a 35,000 square foot medical office building space in Decatur, Georgia. The client was not a seasoned real estate developer but savvy enough to identify an immediate opportunity in a burgeoning market. The building was only partially completed and required additional construction financing to bring the asset to Certificate of Occupancy. Multiple lenders were not comfortable due to the sponsor being a relatively unseasoned developer and stepping into a partially completed construction project with a new general contractor. The Borrower was unable to provide a repayment guarantee due to a recent bankruptcy, open tax liens and pending litigation. Sensitive to initial lender deposits, the Borrower had previously been under application to a private lender who lacked discretionary capital and utilized the deposit as a profit center, without providing services. GSP procured market rate comps and supporting documentation to confirm market strength and provided an unsolicited LOI for a sale of the subject prior to obtaining the CofO. Sponsor capacity was substantiated by his ability to bring the asset to its’ current level of completion, retain a new GC and pre-lease 100% of the 35,000 square feet to multiple tenants. GSP called on their relationship sources to identify discretionary capital motived by funding loans over collecting one-off fees. The one-year, non-recourse floating rate term is priced at 10.5% and does not require a prepayment penalty. Rate: 10.5% Term: One Year Amort: Interest Only Prepayment: None Non-recourse Advisors: Gilda Rivera, Salar Royaei
January 30, 2014
Transaction Description: GSP successfully arranged the $49,500,000 non-recourse, construction loan for a 65,000 square foot office, retail, and apartment project in Palo Alto, California. The subject is adjacent to Stanford University. The developer received the necessary zone change and entitlements in 2009 but construction was delayed during the market down-turn and the lack of construction financing.
Challenge: The Sponsor required high-leverage, non-recourse construction financing with no additional equity requirement.
Solution: GSP demonstrated the incredible strength and desirability of the Palo Alto office market, one of the tightest in the Country with less than a 5% vacancy and monthly office rents reaching $8.00 psf NNN. The lender understood the value of this location as well as the value of the new zoning obtained in 2009. The lender provided a 75% loan-to-cost, non-recourse financing structure with a 30-month term which utilized the existing cash and imputed equity in the project. The Sponsor only supplied a completion guarantee.
August 22, 2013
8 – 21 – 13 Transaction Description: George Smith Partners successfully placed the 72% of cost construction debt for a single tenant ground-up development in a mid-western tertiary market. The flex-office & industrial building is 100% pre-leased to the subsidiary of an international corporation. The capital markets were less than enthused with the 57,000 MSA population and single tenant occupancy. The easily divisible project design and strong tenant viability mitigated market concerns. The construction loan includes an optional five-year mini-perm upon rent commencement at 2.75% over the 5 year LIBOR. The 15 month construction loan was sized to 75% of cost and priced at LIBOR + 2.90%, sub-3.20% today. There is no prepayment penalty or exit fee for the construction debt.