$22,000,000 Joint Venture Equity for the Acquisition of an Industrial Portfolio

$22,000,000 Joint Venture Equity for the Acquisition of an Industrial Portfolio

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Transaction Description: George Smith Partners arranged the Joint Venture equity for the $42,500,000 acquisition of a seven-building industrial portfolio in greater Los Angeles. The existing Trust Deed was assumed due to an onerous pre-payment penalty. The portfolio encompasses 500,000 square feet of improvements. Building uses include big box industrial (24’ clear height with 28’ dock high doors), showroom/flex, and built-out research and development spaces. The high-image buildings have excellent curb appeal. The purchaser is a well-regarded, Los Angeles based investor with institutional investment experience and deep market knowledge. Equity terms included a 96%/4% capital contribution and promotes over an 8% preferred return.

Challenge: Although 95% leased, these assets are only 88% occupied with over 75% of tenant leases rolling in the next 36 months. The seller had an existing low leverage loan in-place with a significant prepayment penalty and a high mortgage constant due to a 25 year amortization. Assumption of the existing loan resulted in a low cash-on-cash yield and an IRR in the low to mid-teens depending on future market rents and inflation assumptions.

Solution: GSP documented substantial rent growth in the sub-market and a 4% vacancy rate. We identified a core-plus equity investor who is knowledgeable of the sub-market and quickly became comfortable with the strength of the sponsorship, low cost basis, and risk-adjusted returns. GSP conducted a lender survey to explore replacing the existing debt and prepared a sensitivity analysis to evaluate low cost alternatives. Allowing for all pre-payment costs, we confirmed a loan assumption would provide the lowest cost debt capital.

Advisors: Gary E. Mozer, Loren Bedolla

Related Financings

85.8% LTV $4,700,000 Re-Capitalization of a Maturing TIC Note with Senior Debt & Preferred Equity

November 15, 2012

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Transaction Description: GSP placed a two-tranche restructure involving the “roll up” of a Tenant-In-Common (TIC) ownership for a 73,000 square foot, multitenant flex industrial building in the Pacific Southwest. GSP successfully arranged a 10 year, fixed rate refinance 1st trust deed with a life insurance company and added a layer of preferred equity to obtain the required loan proceeds. The combined capitalization netted the $4,700,000 required to recast the loan down to a 1.05 debt coverage ratio.

Challenge: The current loan was due to expire. With confirmation that the lender would not extend the balloon, an NOD date was looming. Ownership was held as Tenants In Common; a structure avoided in today’s financial climate, and in most cases, is not financeable. The subject property had diminished in value significantly since the sponsorship group had acquired the asset. Sufficient leverage from a senior capital provider was not obtainable. Sponsorship was unwilling to dilute their interest with more equity infused in the property.

Solution: The TIC owners agreed to “roll-up” into a new LLC under IRS code 721. This allowed them to contribute the property to a new single purpose ownership entity without realizing a capital gain or loss. GSP sourced a low priced life company execution and identified a preferred equity source that would not take a promoted interest in the entity, just a coupon. The resulting blended cost of capital was in line with the Borrowers’ existing senior coupon and did not require an additional equity infusion. As the Sponsor expressed; “Two years ago we were contemplating giving the asset back, or best case bringing in new money and getting severely diluted. Neither one of these events happened. You guys really saved the day for us with the creative structure you were able to put together.”

Rate: Senior 4.20%; Pref Equity 10% Current Pay Rate (5% Accrual)- 5.98% Blended Current Pay

Amort: Senior 25 Years; Pref Equity Interest Only

LTV: 85.8%

DCR: 1.05

Brokers: Malcolm Davies, Loren Bedolla

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$22,000,000 Joint Venture Equity for the Acquisition of an Industrial Portfolio

Related Financings

85.8% LTV $4,700,000 Re-Capitalization of a Maturing TIC Note with Senior Debt & Preferred Equity

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