Term: 10 Years
Rate: 10 Year Swap + 2.53% (4.91%)
Amortization: 5 years IO followed by 30 year amortization
Prepayment Penalty: Defeasance
Debt Yield: 7.75%
Origination Fees: Par
George Smith Partners secured $30,000,000 in proceeds for the non-recourse cash out refinance of a 156,000 square foot retail shopping center located in Los Angeles. The loan is fixed at a rate of 4.91% for a period of 10 years and offers 5 years of interest only payments. A number of challenges were encountered while marketing the deal. The property is anchored by a major grocery chain, but the lease rolls in 5 years. Several other tenants also roll within 5 years. Additionally, the property location is in a secondary area of greater Los Angeles. However, the borrowers had successfully kept the property at or near 100% occupied for the last several years due to the prominent visibility of the center along a high-traffic street. Finally, sales data was only available for the grocer and one of the separate pads. The owners did not have sales data for the other 20 tenants. GSP sourced a CMBS lender that was not only comfortable with each of these risks, but underwrote the transaction aggressively. The selected lender gave credit for rent increases coming within the next year and used a 3% vacancy rate, resulting in higher underwritten income. The lender was able to size the deal to a 7.75% debt yield, whereas most CMBS lenders would need a minimum 8% debt yield. This resulted in the selected lender providing proceeds of nearly $1,000,000 more than any other lender. Since the buyer had invested considerable amounts in capital expenditures and completed major upgrades in the past three years, the lender was able to underwrite to lower replacement reserves as well as lower tenant improvement and leasing commissions. The loan closed in about 40 days from the time it went into application.
April 19, 2017
George Smith Partners placed a $7,500,000 refinance of two special use, unanchored multi-tenant retail properties located in the City of Industry. A sizable return on equity (142% of total capitalization) was permitted due to our Sponsors’ 20 year ownership and management history of the asset. This transaction was structured as senior debt funded at $4,300,000 and a $3,200,000 crossed-collateralized stand-by line of credit. Both vehicles were funded by the same capital source. Due to the special-use tenant mix, the senior debt was sized to 60% LTV and priced at Prime plus 1% fixed for five years and amortized over 25 years, while the credit line will float at Prime plus 1.5% for two years. Interest is only paid on funds drawn. There is no prepayment penalty for either tranche.
Special use tenancy at both properties is subject to a CC&R review by the local municipality at the end of 2017. One tenant who occupies 20% of the net rentable square feet went dark and vacated the property during the due diligence process.
GSP identified a regional lender that understood the market and was eager to build a relationship with our Sponsor, who has impressive real estate holdings, a long track record of execution and significant financial strength. By demonstrating that market rents and occupancy levels still allowed for significant debt service coverage, GSP was able to assist the lender in gaining comfort with the properties’ specialty-use and uncertain occupancy future.
Rate: Senior Loan – Prime + 1%; Line of Credit – Prime + 1.5%
Term: Senior Loan – 5 Years; Line of Credit – 2 Years + Extensions
Amortization: Senior Loan – 25 Years; Line of Credit – Interest Only
DCR: Senior Loan – 1.25x; Line of Credit – 1.5x
Lender Fee: 0.75%
$7,000,000 Non-Recourse Financing for a Single Tenant Investment Grade Retail Property in Suburban Northern California
February 22, 2017
George Smith Partners successfully placed ten year fixed rate financing on a single tenant retail property located in Northern California. The building is occupied by a national drug store tenant on a 75 year lease with a 2032 termination option. The tenant signed a fixed rate lease at the top of the market in 2007 but reported year over year sales decline since 2012 due to increased competition in the trade area. These two factors resulted in a high occupancy cost. GSP identified a national lender able to underwrite the tenant’s full rent because of the lease’s long-term investment grade characteristics, despite the high current occupancy cost. Additionally, GSP highlighted the recent closure of another drug store in the trade area that will increase the tenant’s market share going forward and increase sales. The loan structure includes five years of Interest Only payments to maximize Sponsor cash flow, then converts to a 30-year amortization schedule. The 67% leverage loan has a fixed rate coupon of 4.87% for the 10-year term.
February 22, 2017
George Smith Partners secured $4,950,000 for the refinance of a 20,020 square foot retail strip center located in Los Angeles, California. The Sponsor requested a rate and term refinance and was not interested in maximizing leverage. Accordingly, GSP was able to source a Lender known to compete aggressively on rate for lower leverage deals. Additionally, the property had two units located in a high-visibility corner pad, while the remaining units were inline strip space. The corner pad was leased at rates considerably higher than the inline space. Although it was challenging for the Lender and appraiser to support the higher rents of the corner pad, GSP provided extensive rent comparable data for freestanding pads in the submarket. Underwritten cash flow and property value were well supported and the Lender maintained originally quoted proceeds. Loan is fixed at 4.28% for 5 years, then floats at 6 month LIBOR plus 2.35%.
$8,100,000 Non-Recourse Permanent Financing for Secondary Market Shadow Anchored Retail with Rollover Risk
October 19, 2016
Transaction Description: George Smith Partners successfully placed $8,100,000 in ten year fixed rate first mortgage financing on three big-box retail spaces occupied by national retailers in a secondary California Walmart shadow-anchored retail center. Constructed in 2015, all three tenants executed ten year lease terms, creating rollover event risk during the new loan term. George Smith Partners identified a national institutional lender able to provide a ten-year loan term despite not having historical sales. To mitigate the tenant rollover concentration at loan maturity, the transaction is structured with a cash flow sweep 12 months prior to two of the three tenants’ lease maturities. Sized to 68% of appraised value, the transaction includes five years of Interest Only payments prior to converting to a 30-year amortization schedule. This non-recourse loan carries a 4.54% fixed coupon.
July 20, 2016
George Smith Partners successfully placed $9,300,000 of non-recourse, first mortgage debt to refinance a 70,000 square foot Bay Area multi-tenant retail property anchored by an independent grocer whose lease is backed by a large wholesale grocery cooperative. The property has a stable occupancy rate below 90% due to approximately 4,600 square feet of static vacancy. In order to maintain leverage despite the reduced income resulting from the static vacancy, George Smith Partners sourced a lender comfortable with a debt yield hurdle below 8% and a 1.20x debt service coverage threshold. The 70% leverage, non-recourse loan has a 4.25% fixed coupon and the 10-year term is interest only for the first four years with a 30-year amortization schedule thereafter.
July 20, 2016
George Smith Partners placed the cash-out refinance on a grocery & drug anchored retail center that was recently acquired in an all-cash execution. This non-stabilized California asset closed without the benefit of leverage and our Sponsor sought to recapitalize the majority of their equity investment on a non-recourse basis. Fixed for five years at SWAPs+225, the non-recourse loan was sized to 65% of current appraised value from a California Portfolio capital provider.
Rate: 5 Year Swap + 225
Term: Five Years
Amortization: 30 years
Prepayment: Swap Breakage Only
- Advisors: Scott Meredith