$12,700,000 Cash-Out Mixed Use Refinance at 3.50% Fixed for Five Years w/ Three Years IO

Rate: 3.50% Fixed for 5 years; 6 Month LIBOR + 2.50% thereafter
Term: 15 years
Amortization: 3 years IO; 30 Years thereafter
Prepayment Penalty: 3,2,1
LTV: 65%
DCR: 1.15
Origination Fees: Par

Transaction Description:
George Smith Partners secured $12,700,000 for the cash out refinance of a stabilized 60-unit historic mixed use property located in Downtown Los Angeles. Fixed for five years at 3.50%, the loan floats at 6 month LIBOR + 2.50% for the remaining 10-year term. There are three years of interest only payments and a 3,2,1 step down prepayment penalty. From the time due diligence was commenced, closing occurred in 40 days with no change to the original terms of the application.

Upon purchasing the property a decade ago, our Sponsors established a bifurcated organizational structure that allowed them to take advantage of a historical tax credit program. Although that benefit was exhausted, the complicated structure remained in place. The subject qualified for an ongoing property tax benefit under the Mills Act but required annual renewal. Most Capital Providers assumed a default rate position using Proposition 13 metrics that stressed the actual net cash flow. The large amount of multifamily units currently under construction in Downtown Los Angeles was also a concern for all underwriters.

GSP identified a capital source that was comfortable with the numerous complexities and layers of the ownership structure. NOI was stressed with higher than actual property taxes although our Capital Provider agreed to underwrite down to a 1.15 DCR to allow for additional loan proceeds on their stressed cash flow. Presenting the property as workforce housing and not as the more expensive luxury housing currently coming on-line and under development, offers a competitive advantage over the newer product with higher finishes. The subject’s lower price point allows the property to operate in a separate, less competitive class than newer, more expensive construction.


Related Financings

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    Commercial Real Estate $2,925,000 Cash-Out Refinance for a Mixed Use Property in Palm Desert at 87% Loan to Cost

    May 30, 2018

    George Smith Partners arranged a $2,925,000 cash-out refinance loan for a 20,300 square foot mixed-use office over retail property in Palm Desert, California. The deal presented numerous challenges. First, the sponsor only owned the property for three months. Second, a lease was not available for the anchor restaurant space comprising two thirds of the property’s square footage. Third, the sponsor required extremely high leverage and conventional bank interest rates. Finally, the Sponsor needed to close the refinance transaction in 30 days due to a pending acquisition.

    To overcome the challenges George Smith Partners sourced a bank lender with which it had a long history of closing aggressive conventional financing with low interest rates. The property’s attractive location in Palm Desert, between the well-known retail thorofare of El Paseo and Highway 111, was emphasized as well as the Sponsor’s successful track record of purchasing notes on distressed properties, foreclosing on those properties and repositioning them.

    Sized to an aggressive 87% of purchase price, the loan included a 6-month interest reserve but did not require a holdback for TIs and LCs. The three year mini permanent loan is interest only for the first 12 months followed by 25 year amortization for the remaining two years. The loan floats at Prime plus 0.5% (5.25% today) with no prepayment penalty, and the lender fee was a minimal 0.5%. The loan closed in exactly 30 calendar days from application, which is an extremely fast closing timeframe for a conventional bank.

    Rate: Prime + 0.5%
    Term: 3 Years
    Amortization: 12 Months Interest Only; 25 Year Amortization Thereafter
    LTC / LTV: 87% / 65%
    Recourse: Full Recourse
    Prepayment Penalty: None
    Lender Fee: 0.5%

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    $5,750,000 90% LTC Acquisition Bridge Financing for Mixed-Use Development in Burbank, CA

    April 25, 2018

    Transaction Description:
    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
    Guarantee: Recourse