TERMS ARE CONFIDENTIAL
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.
June 19, 2013
6 – 12 – 13 Transaction Description: George Smith Partners placed the $52,285,850 Senior Construction & Mezzanine Development Financing w/Performance Bonds for Phase I of a 310 acre master development project in Upper Marlboro, Prince George County, Maryland. Upon completion, the build out will encompass 533,000 sf of retail, 845 “for sale” SFRs & town homes, 2,240,000 sf.of office, 600 key hotels (multiple flags) and 884 multifamily rental units. The financing provided was for Phase I of the development, which consists of the entire infrastructure to deliver 500,000 sf of retail, 348 town homes, 504 rental units and a 150-key hotel. The raw land was initially purchased in February 2012 for $23,700,000. Challenge: The foreign based international development company has been extremely active in acquiring land in the United States during the past 5 years from their Canadian HQ. Collectively, they have acquired over 50,000+ acres in Arizona, Texas, Georgia, North Carolina, DC Region and Southern California. While they have been active in developing their land holdings in Canada since 1979, this was their first large financing request in the U.S. (The company owns all of their land un-levered). To add further complexity, the ownership structure in this asset included a Canadian Public Company and a German entity, which owned the asset as a TIC Structure. This precluded the sponsor from using a pledge of membership interest for the mezzanine financing. Sponsorship also had an important deadline to start the development. Negotiating the inter-creditor was paramount in a successful closing of the capital stack between the senior & mezzanine lenders. Prince George County has some of the most difficult performance bonding requirements in the country. Solution: GSP immediately embarked on a strategic and national in scope process of marketing that included face-to-face meetings in Boston, New York, Maryland, Virginia, DC, Texas, Arizona & California. The project included many moving parts involving articulating the strengths in multiple disciplines; valuation in retail, single family, hospitality, multifamily rentals, office & residual tract land. Combining this articulation and blanketing the country, GSP was able to secure senior debt from a Texas based bank that understood land development and was excited about the prospects for future development opportunities with this sponsor. GSP then structured the mezzanine loan from a New York based hedge fund making its first investment in commercial real estate. By focusing on market education in structuring and collateral, we were able to successfully complete a complicated inter-creditor agreement and funding by the mezzanine loan. Securing the mezzanine loan as a 2nd trust deed, we were able to provide the mezzanine lender it’s security, rather than by the standard pledge of membership interest. By adding a portion of the bonding capacity from the lender, the Sponsor was able to reduce the overall costs to secure the performance bonds for the project. The Grand Opening of the project is Thursday, June 13th.