$6,450,000 Single Resident Occupancy (SRO) Rehab

Transaction Description:

George Smith Partners secured $3,744,000 of permanent financing for the acquisition of 3 single-tenant Starbucks. The drive-thru locations all have new leases with at least 8 years of term left and tenant options to extend. Each property is located in a different state across the middle of the country (Texas, Louisiana, Illinois). The Sponsor wanted to have a single capital source finance all three properties for ease of closing and ongoing servicing. GSP was able to find a lender that could accommodate the variety of locations and provide the same terms for each acquisition. All of the loans are fixed at 4.75% for 5 years and have a 30-year amortization schedule. Loan amounts were sized to a 1.25x DSCR, which resulted in an average LTV of 62%. The recourse financings do not have any prepayment penalties and can be refinanced at any time.

George Smith Partners secured $2,849,250 in acquisition financing for a single-tenant Tractor Supply Company in Las Vegas, New Mexico. The Sponsor purchased the 19,000 square foot building for $3,800,000 at a very attractive cap rate for the product type. The tenant has 10 years remaining on their original lease with 10% rental increases every 5 years. GSP was able to mitigate the risk that the market presented by highlighting the Sponsor’s track record with similar assets. Sized to 75% of purchase price, the permanent loan is fixed for 7 years then floats for the last 3 years of the 10-year term.

George Smith Partners arranged the acquisition financing for a single tenant office located in the downtown area of a top Southern California market. The tenant is a private technology company that has 2 years remaining on their lease term. Due to the short lease term, GSP structured in reserves for tenant improvements, leasing commissions, and interest payments in the event that the tenant decides to vacate. If the tenant signs a new lease, the reserves that were held back will be released to the Sponsor. The lender was able to get comfortable with funding the reserves since the tenant is currently paying below-market rents and the property should see an increase in value with higher implemented rents at lease expiration. The financing has a 3-year term and carries a 5-year extension option that can be executed once the tenancy has been finalized and certain financial metrics have been realized. The recourse loan has an initial funding of $8,990,000 and is sized to 70% of total cost, floating at a rate of 2.75% over the one month LIBOR.  The additional future funding for re-tenanting the building is not charged interest until drawn.

Transaction Description:
George Smith Partners secured $1,420,000 in acquisition financing for a single tenant building in Atwater, California. The tenant is a national bank with a strong credit rating and has seven years remaining on the lease with extension options available. The Sponsor wanted to put long term fixed-rate financing on the property. GSP was able to identify a capital source that would provide a 10-year term, even though the tenant rolls within that period. The interest rate is fixed at 4.375% for the first 6 years of the loan. The rate then resets and is fixed again for the last 4 years, with a maximum increase of 50 basis points above the original rate (4.875%). This ensures that the Sponsor has a fixed rate throughout the entirety of the 10-year term, and eliminates interest rate risk. Loan proceeds were constrained by a 1.25x DSCR on a 25 year amortization.

Transaction Description:

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.

Transaction Description:
George Smith Partners placed the $8,400,000 cash-out refinance of a 105,752 square foot owner-user warehouse & distribution industrial building in Valencia, California. The single tenant is a non-credit owner-user who will utilize a portion of the loan proceeds for reinvestment into a building and operations expansion. Fixed for ten years at 4.69%, the non-recourse loan amortizes over 30 years.

Challenge:
Our Sponsor requested a non-recourse cash-out execution for a non-credit single tenant; not an ideal structure in today’s capital market lending environment. The physical improvements included a recently added 10,000 square foot building that lacked permits and a certificate of occupancy. Underwritten value was required from this unpermitted addition in order to maintain loan proceeds.

Solution:
George Smith Partners identified an institutional capital source that underwrote the transaction as an investor property and not as an on-going business concern. The pocket to pocket lease was supported by the strong industrial market location and supplemented with a list of multiple tenants interested in assuming occupancy should the Subject become available for lease. George Smith Partners worked with the lender to structure around the permitting issue by posting a small “permitting” reserve and allocating six months post-closing to obtain the Certificate of Occupancy for the addition. All additional square footage was used in underwriting, resulting in a higher underwritten value and allowing for a $2,000,000 cash-out through this refinance.