Los Angeles: $22,300,000 Ground-Up Development; 51 Rental Units over Retail @ 89% of Cost

Rate: L+375 & 12.25%
Term: Three years plus options
Fee: 0.5% & 1.5%
Recourse: Full plus Completion & Carve-Outs Only

George Smith Partners placed the ground-up development debt for a Koreatown (Los Angeles City District) parcel for 51 rental units over 3,350 square feet of ground-floor retail. Structured as an A/B execution, the senior lender was willing to advance up-to 75% of cost subject to a 65% valuation upon stabilization. The senior loan was trimmed to allow for the layering of a $5,000,000 mezzanine tranche. A partial deferral of the development fee rounded out the capitalization. As added security, the bank underwrote the secondary capital provider and executed a recognition acknowledgement with the junior lender. Bank priced debt at LIBOR plus 375 and a half point for the 36 month term. Subordinate debt will charge 12.25% annually on their tranche but will not participate in any upside. The junior debt only requires a carve-out guarantee while the senior note is a full repayment guarantee along with a completion guarantee.

Advisors

Related Financings

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    $45,000,000 Non-Recourse Cash-Out Refinance of Studio/Office Mixed-Use Property in Hollywood, CA

    November 7, 2018

    Transaction Description:

    George Smith Partners secured a $45,000,000 non-recourse cash-out loan for the refinance of an office and production studio property located in the heart of Hollywood, California. The Sponsor purchased the Property all-cash in late 2017, with the knowledge that the in-place tenant had an early 2018 lease maturity and would not be renewing. Shortly after purchasing the asset with no tenant in tow, the Sponsor signed a long term lease with a high profile media technology company for the entire property.

    Challenges:

    Despite a long term lease with a prominent credit tenant, the transaction posted numerous challenges. Transaction requirements included: a lender comfortable with the asset’s specialty use; a non-recourse execution; a structure with no prepayment penalty allowing for maximum flexibility in the event of a sale or refinance; no impounds, escrows or lockboxes; and $45,000,000 in proceeds at a sub 5% rate.

    Solutions:

    In addition to emphasizing the iconic nature of the asset and its trophy location, GSP demonstrated the significant value the Sponsor had unlocked by signing an accretive lease with a long term, credit tenant and the Sponsor’s significant cash investment remaining in the Property. GSP also provided sales and rent comps supporting the basis in the asset and the rental rate in the lease. These items ultimately allowed the Lender to get comfortable with the transaction.

    The $45,000,000 non-recourse loan carries a 7-year term and floats at an attractive rate of Prime minus 25 bps (4.75% today). The loan requires no impounds, escrows or lockboxes and is freely prepayable at any time with no penalty or exit fee.

    Rate: Floating at Prime minus 25bps (4.75% today)
    Term: 7 Years
    Amortization: 25 Years
    Guarantee: Non-Recourse
    LTV: 55%
    Prepayment Penalty: None

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    Construction Loans: $5,800,000 Financing Facility for Assemblage of a Full City Block for Construction of Resort Destination Mixed-Use Project

    July 25, 2018

    George Smith Partners successfully arranged the $5,800,000 financing facility for the purpose of finalizing the assemblage of a full city block in a mountain resort destination. The funds were utilized by the 3rd generation owner of the land to close on a city parcel in order to finalize their submittal for permits for the future development of destination mixed use development. A challenge that GSP faced was to secure a new capital source after the original lender backed out prior to closing. GSP successfully identified a new capital source who understood the complexities of the market as well as the opportunity and was able to close within three weeks.

    ALL TERMS CONFIDENTIAL

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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.

    Challenges:
    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.

    Solution:
    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

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    Construction Loans: $33,000,000 (80% LTC) Construction Financing for Mixed-Use Project with Micro Units

    March 21, 2018

    George Smith Partners arranged $33,000,000 of construction financing for a mixed-use project located in the Southwest. The project is set to include 165 micro-unit apartments, 20,000 square feet of retail, and 43,000 square feet of office space. The apartments comprise a majority of the income, but it was very hard to obtain quality comps given the lack of micro-unit inventory in the market. GSP identified a lender that was able to get comfortable with the micro-unit concept even with a lack of comparable properties. The Lender was also comfortable giving the Sponsor credit for an increase in the value of the land since acquisition, eliminating the need for any new cash at closing. The non-recourse loan is sized to 80% of total cost (including the appreciation in the land) and is priced at LIBOR + 8.75%. The financing carries an 18-month term with three, 6-month extensions.

    Rate: LIBOR + 8.75%
    Term: 18 Months with Three, 6-Month Extensions
    Amortization: Interest Only
    LTC: 80%
    LTV: Sized to 70% of As-Complete Value
    Guarantee: Non-Recourse

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    Structured Financing: $3,265,000 Cash-Out Permanent Financing on a Newly Constructed Apartment Community in St. Louis City, Missouri

    February 21, 2018

    GSP successfully placed $3,265,000 in permanent debt to take out a construction loan on a newly built mixed-use property located in the heart of St. Louis City. The non-recourse, 75% leverage loan has a fixed coupon of 4.49% for the duration of the seven-year term. The financing provided significant cash out to the borrower and maximized cash flow via two years of interest only payments prior to converting to 30-year amortization. GSP leveraged its lender relationships to achieve the most competitive loan terms for the borrower which included structuring multiple pricing and loan-to-value exceptions.

    Rate: 4.49%, Fixed
    Term: Seven years
    Amortization: Two years Interest Only; 30-year amortization thereafter
    LTV: 70%
    Prepayment: Step-Down Prepayment
    Guarantee: Non-Recourse
    Lender Fee: None