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%
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.
April 10, 2014
4 – 9 – 14 Transaction Description: George Smith Partners successfully placed the 65% loan to purchase (67% loan to value due to a low appraisal) acquisition financing of a Pep-Boys auto repair store in New York State. The borrower acquired the property as the replacement property in a 1031 tax deferred exchange. The 20 year amortized term is fixed for 5 years at 5.0% prior to being recast for the second 5 year term at then prevailing rates. A step-down prepayment was structured to provide for future flexibility. Challenge: With only 9 years remaining on the initial lease term, institutional lenders are leery of event risk on single tenant properties. The auto-bays added a specialty-use component to the collateral should the tenant not renew one year prior to the loan termination date. An environmental concern was also raised by a number of portfolio lenders polled. All borrower contingencies were removed to secure control of the property in what was a very competitive bid process. Certainty of close as applied for and timely execution was paramount to avoid severe tax consequences. The appraisal came in less than the purchase price, thus jeopardizing loan proceeds. Solution: Mr. Stein quickly identified a local lender officed minutes from the property who immediately inspected and reviewed the property information. Their “in the market knowledge” gave a comfort that this location would quickly release to an identical user should Pep Boys vacate. A clean Phase I report mitigated all environmental concerns. A full credit committee commitment was issued within 24 hours of loan submission conditioned only upon 3rd party reports. Despite the low valuation, GSP worked with the lender to quantify lender risks for this cash-in execution and established a comfort level to extend their LTV constraint by an additional 2 percentage points.
October 10, 2013
10 – 9 – 13 Transaction Description: Ameet Chagan placed the $4,400,000 refinance of a 22,480 square foot neighborhood retail center in Southern California. The rate was locked at application fixed for 7 years at 4.625% on a 25 year amortization. The mixed-use tenancy included a church as well as more traditional in-line tenants. Challenge: The subject property’s largest tenant is a church on a month-to-month lease. Property owner lacked sufficient liquidity and net worth for most institutional capital providers. The Sponsor was rate sensitive and required a portfolio lender with flexibility in servicing the loan. Solution: GSP identified a portfolio lender that understood the subject property’s market and potential reposition of the church space to retail use if the lease does not renew. GSP highlighted the superior historical cash flow of the asset and underscored the guarantor as a second generation owner; representing 30 years of sponsorship. By identifying a lending source whose rate is not directly tied to the U.S. Treasury, the borrower was unaffected by the rapid spike in Treasury rates just prior to application. Rate: 4.625% Term: 7 Years Amort: 25 Years LTV: 65% Prepayment: 5, 3, 1 Recourse Lender Fee: 0.5% Advisor: Ameet Chagan
July 25, 2013
7 – 24 – 13 Transaction Description: GSP placed the cash-out refinance of a specialty retail center located on the south shore of Lake Tahoe, California. The 18,000 square foot property was acquired in 2002 and includes 300 feet of lake frontage, a man-made harbor and a 300 foot pier. The 10 Year loan is non-recourse and priced at 5.89%, amortized over 30 Years. Proceeds were tied to a 9.5% debt yield on this special use asset. Challenge: Beyond the challenges associated with the inherent seasonality of the property’s performance and the high loan psf ($562/sf), the State Land Commission’s permit, authorizing the property’s access to the water was cancelable upon change in ownership; an impossibility for any lender. Several of the center’s largest water oriented tenants lacked the proper insurance coverage required by most lenders. Solution: GSP promoted the property’s strong operating history and the rarity of having 300 square feet of lake frontage near a downtown corridor. These factors contributed to the lenders comfort with both the seasonality and the high loan psf. GSP worked with the lender and the borrower’s legal counsel to restructure the state permit with the California State Lands Commission. GSP negotiated with both the borrower’s and lender’s insurance consultants to resolve coverage issues.
February 14, 2013
2 – 13 – 13 GSP arranged the financing for a portfolio of restaurants comprised of several Burger Kings and an IHOP in tertiary locations throughout the Midwest. We were engaged to obtain a lower coupon and faster amortization, to provide debt free properties in the foreseeable future. GSP secured a 60% LTV fixed for 10 years at 4.45%; over 200 basis points lower than the previous loan. The lower rate yet much higher amortization netted the same cash flow after debt service to the Borrower, an important consideration for their family trust. The loans were funded separately and the properties are not cross-collateralized.