Rate: 1 month LIBOR + 500
Term: 15 Months + three 3 month extensions
Amortization: Interest Only
Loan to Cost: 88% LTC
Lender Fee: 1.25%
Prepayment Penalty: None
George Smith Partners arranged a $3,820,000, 95% LTC construction of an 11,500 square foot NNN DaVita Dialysis center in a tertiary market of California. The Borrower entity was a joint venture between a developer and the land owner.
The Property is located in a tertiary market and also in a predominately residential neighborhood. The Sponsor was unable to contribute cash equity to the Project. Many lenders require 15% of the as-complete value to be in the form of cash equity. Lastly, while the tenant is somewhat well known in the capital markets, the Property is rated as sub-investment grade.
George Smith Partners identified a lender who recognized the strength of the tenant and the lease terms relative to the market. The Lender accepted the as-is value of the land which, after the entitlements were achieved, was significantly more than the limited partner’s cost. The Lender proceeded with the loan without any Sponsor cash equity in the deal, reimbursed the Developer for out of pocket costs to date and gave them additional proceeds as a result of excess value in the land. Because the Lender allowed the land to be contributed at as-is value, the loan amount resulted in a loan to cost ratio of 88%. Given the original cost of the land by the Limited Partner, the actual loan-to-cost ratio was closer to 95%.
December 12, 2018
George Smith Partners secured $9,300,000 for the ground-up development of a 32-unit multifamily building in the Koreatown neighborhood of Los Angeles. The 5-story project will include a mix of 1 and 2 bedroom units with gated subterranean parking. Sized to 80% of actual costs, the 36-month term carries two – 1-year options and is priced at 2.75% over LIBOR.
Our Sponsor requested maximum loan proceeds which would require the acceptance of imputed equity. George Smith Partners identified a Los Angeles based construction lender that understood the value that had been created with re-entitlements and permitting since the property was initially acquired four years ago. This capital provider agreed to value the land at current 2018 values as opposed to the acquisition price. The bank ordered appraisal valued the land at over 3x the Sponsor’s 2014 purchase price and imputed equity was utilized in calculating the Sponsor’s equity contribution. No additional funds were required at closing.
December 5, 2018
George Smith Partners secured $8,700,000 of non-recourse, bridge acquisition financing for a 45,000 square foot retail center located in Richardson, TX. The Center, which was built in 1985, has a diverse mix of regional tenants and sits on the corner of two of the main thoroughfares in the area.
The Sponsor purchased the Property with the intent to add value through two approaches: (1) increasing rents for tenants that are rolling and paying below-market rates, and (2) constructing an additional 12,000 square feet on undeveloped land within the parcel. There were complications with parcelizing the existing building and the land, which meant that a single lender needed to fund the entire project. The large renovation and construction budget also resulted in only 41% of the total loan being funded at closing.
George Smith Partners identified a lender that could structure the financing to have two holdback reserves, one for the CapEx and TI/LC’s for the existing space and the other dedicated to funding the construction of the new building. The separate reserves allow the Sponsor to pursue both value-add opportunities simultaneously, which drastically reduces the project timeline and maximizes the Sponsor’s IRR. Our capital source was able to get comfortable with the construction component by requiring 75% of the space to be pre-leased prior to funding.
$115,000,000 of Non-Recourse High-Leverage Senior Construction Financing for the Ground Up Development of a 326-Key Four-Star Radisson BLU Hotel in Anaheim, CA
December 5, 2018
George Smith Partners placed a $115,000,000 non-recourse senior construction loan for the ground up development of a 326-key four-star Radisson BLU Hotel in Anaheim, CA. The Property is located in the Disneyland/Anaheim Convention Center submarket less than 1 mile from Disneyland Park. Once completed, the 12 story luxury hotel will be one of the few four star offerings available outside the Park and will feature an innovative, modern design. The amenity rich property will include a rooftop pool and deck with unobstructed views of the famous Disneyland nightly fireworks show and surrounding area. Catering to the Park-going family travelers, bunkbeds will be included in over half the rooms, and the hotel will feature a ground floor pool as well as upscale food and beverage offerings.
The Project will be the first major development east of Interstate 5 in the Disneyland submarket. Additionally, the Hotel is slated to be the 4th Radisson BLU in the United States and will be one of the first four-star offerings available outside of the Disneyland Park.
GSP focused on the submarket’s underlying fundamentals, including 28 million annual visitors, as well as its resilient occupancy rates and average daily rates that stayed relatively consistent through the recession. GSP also demonstrated that the Hotel is likely to capture an outsize share of the submarket’s 4 million annual international visitors. This is due to Radisson’s strong international branding supported by the fact that nearly all 300 Radisson BLUs are located outside the United States. Finally, GSP highlighted the Hotel’s upscale nature, which currently does not exist outside the Park, family friendly design and strong amenity package.
These efforts resulted in a high leverage, non-recourse execution.
November 21, 2018
George Smith Partners placed a ten-year permanent loan for “The Fowler”; a recently constructed 159 unit mixed use multifamily development in Boise, ID. GSP placed the construction loan in Spring 2016 and the Borrower received its final Certificate of Occupancy in March 2018. The Property has become one of the most architecturally significant buildings constructed in downtown Boise. It includes live work units as well as 4,000 square foot of retail.
Our Sponsor obtained +95% physical occupancy in September and was looking to secure a perm loan before year end. Given the rapid lease-up and forecasted rate increases, GSP was commissioned to source the construction loan take-out that would allow for a partial return of equity upon stabilized occupancy but with limited stabilized operating history.
Boise was recently named the fastest growing city in the United States, and the capital markets embraced the Boise MSA’s market dynamics by offering multiple aggressive sizing and pricing structures. Our Sponsor selected an option that allows for a “second bite” for an additional recapitalization once cash flows are further documented and supported by stronger historical operating history. Priced at 153 basis points over the Ten-Year Treasury, the full-term interest only loan allows for future secondary financing.
$58,820,000 Non-Recourse Ground-Up Construction of 304-Unit Luxury Multifamily Property; Preferred Equity to 87% LTC
November 14, 2018
George Smith Partners placed a total of $58,820,000 in structured financing for the ground up development of a luxury 304-unit multifamily development. Proceeds were structured as a $41,070,000 senior construction loan and $17,750,000 of preferred equity. Together these two sources represent 87% of the cost of the project.
The non-recourse senior loan floats at a rate of LIBOR + 4.0%, while the preferred equity accrues at a market rate return. Payments on the preferred equity financing are completely deferred until a capital event occurs at project stabilization. The Preferred Equity Provider is receiving a fixed return on their investment and will not participate in any future upside. There are no repayment guarantees to either Capital Provider.
Since the market has few new multifamily properties with the projected rents, both Capital Providers required extensive market comparable data and a deep dive into the Sponsor’s experience. The business plan was proven out by the Sponsor’s recent successful development, stabilization, and sale of a 220-unit property in the same MSA but a separate sub-market. The Sponsor’s Development Team from the previous project remained intact for the subject property. Financing closed with enough time for the Sponsor to avoid incurring additional fees extending their land loan.
Rate: LIBOR + 4.0%
Origination Fee: 1%
Recourse: Completion Guarantee Only
Origination Fee: 1%
Recourse: Entity Only
October 31, 2018
George Smith Partners secured $23,000,000 in proceeds for the ground up construction of an 80,000 square foot medical office property in Lone Tree, Colorado. The Property consists of a 4.8-acre site located directly across from a hospital campus (Sky Ridge Medical Center). The total project cost is a little over $31M and the loan represents 74% LTC. The Property is only 10% preleased, but it has drawn in a great deal of interest, from potential tenants. The Project is now under construction. This loan was high leverage on a spec deal; 5.25% fixed rate locked at application with 7-year term and non-recourse at stabilization.
Challenges and Solutions:
The first challenge was proving Sponsor’s rent proforma which was much higher than the comps which ranged between $21-24 NNN. With the help of the Appraiser and the Sponsor, GSP was able to get the Lender comfortable with the higher proforma. This was achieved due to the Property’s proximity to the Hospital. This location offers the tenants the ability to be close to the hospital without being subject to hospital use restrictions, approval and oversight. The second challenge was starting the Project prior to the rain and snow season. The Lender was able to fund 2 weeks earlier than originally planned enabling the start of construction.