Rate: Fixed for five years @ 5.0% Re-set 5 year CMT+2.25%
Amortization: 30 years
Origination Fee: ½ point
DCR: 1.25
Recourse: Limited to 20% of the ownership stack
Prepayment Penalty: None
Transaction Description:
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.
Challenges:
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.
Solutions:
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.
Advisors
Related Financings
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$8,700,000 Construction Financing for Office Development; Denver, CO
October 13, 2021
Transaction Description:
George Smith Partners successfully advised on a $8,700,000 construction financing for the development of a 5-story, 23,654 square feet office building located in Denver, CO. The Sponsor’s combined 30-year real estate development experience in conjunction with their partner’s 40+ years of commercial leasing experience was key to securing the financing. GSP worked through several strategies with the Sponsor to source the right non-recourse financing terms for the ground-up ‘spec’ office transaction. Ultimately, GSP successfully obtained several highly reliable financing options, and the Sponsor selected a lender with exceptional terms.
The Sponsor projects a timely delivery for completion of the project in late 2022 and intends to market the lease of the building during design and construction. With the robust economic recovery from the COVID-19 pandemic, the greater Denver metropolitan area is experiencing rapid job growth and expansion, increasing the demand for office spaces.
Rate: L + 925 w/ 0.50% Libor floor
Term: 18 months
LTC: 75%
Prepayment Penalty: 12 months min. interest
Guaranty: Non-Recourse- Advisors: Evan Kinne Ed Steffelin Jordan Lipton
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$56,500,000 Construction Financing for a Coastal Infill Mixed-Use Asset; Solana Beach, CA
May 19, 2021
Transaction Description:
George Smith Partners arranged $56,500,000 in construction financing for the development of a mixed-use coastal infill project in Solana Beach, CA. The mixed-use development features 55,000 square feet of office space, 9,000 square feet of retail and 25 apartment units.
Located just one block from the beach and the Cedros Avenue Design District, the two-story development focused on sustainability will be the largest mixed-use project along Highway 101 in the past three decades. The dearth of comparable projects, especially ones with large office floorplates, presented a unique opportunity.
Amidst a time of market volatility and economic uncertainty, GSP was able to identify capital who not only understood the value of all three components and the subsequent demand but also the ability of the Sponsor to execute on the intended business plan.All Terms Confidential
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$44,500,000 Heavy Bridge Construction Financing to Add Several Uses to an Existing Office and Warehouse; Secondary Market; San Luis Obispo, CA
April 14, 2021
Transaction Description:
George Smith Partners arranged $44,500,000 for heavy bridge financing in San Louis Obispo, CA to recapitalize and fund construction for additional uses on an existing asset. The completed Project will include five uses including multifamily, warehouse, office, self-storage, and a brewery. This is among the largest private projects actively in development in the local market.
The Sponsor has been very creative in obtaining the highest and best use for the asset in a supply constrained market. Despite challenges facing construction projects in today’s volatile commodity market, GSP was able to secure a capital provider to structure high leverage supported by the strong market and underwriting.All Terms Confidential
- Advisors: Evan Kinne Ed Steffelin
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$13,944,000 ($1,180/SF) Non-Recourse Construction Financing for the Redevelopment of a Former Single-Tenant Office Property in Santa Monica, CA
June 12, 2019
Transaction Description:
George Smith Partners placed $13,944,000 in non-recourse construction debt for the conversion of a former single-tenant office property into an 11,800 square foot, luxury, multi-tenant retail property in a prime submarket of Santa Monica, California. GSP diligently worked to source a lender comfortable with funding a loan at a high basis of $1,180/SF for a “first-mover” redevelopment that was 64% pre-leased (on an economic basis) at record-setting rents to a mix of local and regional food and fitness users. Further complicating the loan request was the need to allocate separate components of the “bad boy” non-recourse carve-outs among two unrelated guarantor entities. Approximately 55% of the loan proceeds were future funded with no interest paid on unfunded loan proceeds until drawn.
Rate: One-Month LIBOR + 4.25% (6.75%) at closing burning down to One-Month LIBOR + 3.75% (6.25%) upon stabilization
Term: Three-year initial term plus two one-year extension options
Amortization: Interest only
Debt Yield: 8.5% stable debt yield
LTV: 70% as-complete value, 60% as-stable value
Prepayment: Open prepayment with 24-month spread maintenance
Guaranty: Non-Recourse
Lender Fee: 1% -
$25,000,000 Construction Mezzanine Financing for Speculative Office in Tempe, Arizona
October 3, 2018
Transaction Description:
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.Challenges:
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.Solution:
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.TERMS ARE CONFIDENTIAL
- Advisors: Scott Meredith
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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.
Rate: WSJP+4.25%
Term: 18-month term with Two 6-month extensions
Amortization: IO
LTC: 67% LTC
Prepayment: 12-month minimum interest
Guarantee: Recourse- Advisors: Scott Meredith