Financings

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    Investment Sale: GSP Connects New Qualified Opportunity Zone Fund with Shovel Ready Apartment Complex

    February 6, 2019

    GSP has successfully sourced and brokered the off-market sale of a Los Angeles Koreatown shovel ready multifamily development site in an Opportunity Zone to a mission based community development lender who has just launched an Opportunity Zone Fund. The new tax law allows companies who develop or improve projects located in Opportunity Zones to defer capital gains from the sale of an asset and to reduce or eliminate the taxable gain on the new property.

    Originally engaged to place the construction debt, GSP’s Team Shaffer used our expertise in Opportunity Zones and lender relationship with the newly launched Opportunity Zone Fund to match the buyer and seller together. Our long term client, had purchased the multifamily land with a loan arranged by GSP in 2017. They are a very successful developer/owner in Koreatown and have several larger projects starting construction this year, so the opportunity to flip their project for a large gain and work with a buyer who will focus in making the community better, offered a unique way for both parties to achieve their goals.

    Price: Undisclosed

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    $11,000,000 Cash-Out Construction Loan Take-Out; 75% LTV

    January 30, 2019

    Transaction Description:
    George Smith Partners placed the $11,000,000 take-out of a single-tenant office build-to-suit leased for 10 years to an investment grade GSA tenant located in a secondary Southern California market. The tenant, a Children’s and Family Services office had required security upgrades in the building design and construction. Sized to a 1.25 DCR, loan proceeds netted 80% of the total development cost allowing for a partial recapitalization of Sponsor equity beyond the construction loan. The loan was funded less than two weeks post certificate of occupancy issuance but prior to the tenant opening for operations. Fixed for five years at 5.0%, the loan will reset for the second five year term at the CMT+2.25%. There is no pre-payment penalty.

    Challenges:
    This capital provider traditionally seeks a personal repayment guarantee from at least 51% of the ownership stack. While the 20% GP would sign, none of the limited partners were available to guarantee. Interest rates moved up post application and the Sponsor sought to close as quickly as possible to preserve his applied for coupon. Although the tenant accepted the space and initiated rental payments, they opted to delay their opening date due to the pending holidays. Our permanent loan lender thus questioned if the property was in fact stabilized without an operating tenant. Security cost improvements were amortized into the ten-year lease.

    Solutions:
    A waiver was requested and granted that accepted a personal guarantee from the manager who holds 20% of the Borrower. Support from the investment grade tenant furthered the argument for this waiver. To mitigate stability concerns, the construction loan and loan finance costs were paid at funding. The return of equity will be distributed once the tenant is “doors open” and commences operations. Our underwriter reviewed the requirement for the security needs and understood the benefit of the guaranteed cash flow from the credit tenant. The capital adviser agreed to raise their LTV constraint from the applied for 67% LTV to 75% LTV. There was no reduction in loan proceeds.

    Rate: Fixed for five years @ 5.0% Re-set 5 year CMT+2.25%
    Amortization: 30 years
    Origination Fee: ½ point
    DCR: 1.25
    Recourse: Limited to 20% of the ownership stack
    Prepayment Penalty: None

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    Permanent Refinance for a Single Tenant Industrial Building in Los Angeles, CA

    January 30, 2019

    Transaction Description:
    George Smith Partners successfully placed the $1,500,000 refinance of a 22,250 SF single-tenant industrial building in Los Angeles, California. The Property is well located near USC, minutes from the LA garment district and Downtown LA.

    Challenges:
    The single tenant is a non-credit private label garment manufacturer and the lease is short term expiring in approximately one year. The Property was built in the 1950s, and the contract rent is below market due to functional deficiencies such as clear height and parking spaces as compared to neighboring inventory. Based on the current rent, the Property doesn’t cash flow in the Lender’s credit review.

    Solution:
    GSP utilized its extensive market expertise and strong lender relationships to identify a capital provider willing to provide a 10-year fixed loan without TI Holdbacks or a Leasing Commission reserve. The Lender allowed an early rate lock at application, insulating the Borrower from rising interest rates. Priced at 5.15% for the 10-year term, the fixed loan was sized to 54% of value, with a 25-year amortization.

    Rate: 5.15% fixed
    Term: 10 Years
    Amortization: 25 years
    Loan to Value: 54%
    DSCR: 1.25X
    Prepayment: Modified Yield Maintenance
    Guarantee: Recourse
    Lender Fee: 0.25%

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    Acquisition Financing for NNN Jack in the Box, Texas

    January 23, 2019

    Transaction Description:

    George Smith Partners placed acquisition perm financing for the purchase of a single tenant, NNN-lease Jack in the Box in Texas. The Sponsor is a single asset entity, whose goal is to self-manage the NNN retail property. This Property was identified in a 1031 exchange. Jack in the Box has 12 years remaining on the lease, therefore George Smith Partners worked with the Lender on structuring a 12-year coterminous term. Due to the low leverage and other mitigating factors, GSP was successful in acquiring a 30-year amortization for the Sponsor along with a stepdown prepayment penalty. GSP also negotiated with the Lender to waive all fees.

    Rate: 5.375%
    Term: 5 Years Fixed, 12 Year Term
    Amortization: 30 Years
    Guarantee: Recourse
    Prepayment Penalty: 5,4,3,2,1
    Lender Fees: None

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    $13,600,000 for the Acquisition and Reposition of 199-Units in Mesa, Arizona

    January 23, 2019

    Transaction Description:

    George Smith Partners arranged $13,600,000 of bridge acquisition financing for a 199-unit apartment complex located in Mesa, Arizona. The Property, which was built in 1970, features a pool, bbq area, and playground. The units range from studios to 3-bedrooms and are currently 97% occupied. The Sponsor plans to renovate the exterior area to improve the overall appeal of the Property and address some deferred maintenance . The 3-year loan is sized to 75% LTC and has an interest rate that floats at 3.45% above 1-Month LIBOR. The non-recourse financing has 24 months of yield maintenance and has a 1.0% origination and 0.5% exit fee.

    Rate: 30-Day LIBOR + 3.45%
    Term: 36 Months plus Two 12-Month Extensions
    Amortization: 36 Months Interest Only
    Loan to Cost: 75%
    Prepayment: 24-month spread maintenance; open thereafter
    Guarantee: Non-Recourse
    Lender Fee: 1.00%

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    $8,000,000 Bridge Loan for Riverside County Medical Office

    January 15, 2019

    Transaction Description:

    George Smith Partners placed an $8,000,000 bridge loan for the refinance of a 40% occupied medical office building in Riverside County. The loan floats at a rate of Prime + 1% with interest only payments. The initial term is 12 months and two 6-month extensions are available. Proceeds are structured as $5,800,000 in initial funding, with an additional $2,200,000 that can be drawn down as the property leases up.

    Challenges were encountered when discussing the transaction with lenders. Several years ago, the Borrowers financed their acquisition of the near-vacant property with a bridge loan. Although the Sponsor’s business plan was progressing well, some lenders were not willing to refinance a bridge loan with another bridge loan. Additionally, the Property is located in a secondary market in Riverside County, about an hour east of Los Angeles. Finally, an estoppel and SNDA was required from the largest tenant, but these documents took a long time to negotiate.

    George Smith Partners emphasized that the Sponsors had recently successfully negotiated a long-term lease with a well-known anchor tenant. They also invested $1.4MM in capital expenditures resulting in a total renovation of the property. Since signing the Anchor Tenant, the Borrowers have successfully negotiated long term NNN leases with several other smaller tenants. Although the Property is located in Riverside County, GSP emphasized the strong population growth, especially of retired individuals, in the submarket. This has resulted in increased demand for medical services in a market with limited supply of renovated medical office properties. As a result the selected lender became comfortable with the strength of the asset and the ability of the Sponsors to continue lease-up. The Lender also provided for 60 days after closing to obtain the estoppel and SNDA.

    Rate: Prime + 1% (6.25%)
    Term: 12 months with two 6 month extensions
    Amortization: Interest Only
    Prepayment: None

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    $11,650,000 (72% Loan-to-Value) Non-Recourse, Cash-Out Refinance of a Grocery Shadow-Anchored Salt Lake City Retail Center

    January 15, 2019

    Transaction Description:

    GSP successfully sourced $11,650,000 of non-recourse, cash-out, permanent first mortgage debt sized to 72% loan-to-value to refinance out a maturing bridge loan on a 62,500 square foot, grocery shadow-anchored Salt Lake City multi-tenant retail property. The borrower recently completed its re-tenanting business plan that upgraded the tenant base and stabilized the 1960s vintage retail property at nearly 100% occupancy. Although many lenders are increasingly becoming more conservative regarding leverage and interest only terms on retail properties, GSP sourced a lender that relied on the borrower’s substantial real estate experience, strong submarket performance, and a diverse tenant mix to provide a full-leverage, non-recourse loan that repatriated substantial equity to the borrower and included three years of interest only payments followed by 30-year amortization.

    Rate: 5.15%, Fixed
    Term: 10 years
    Amortization: Three years interest only; 30-year amortization thereafter
    LTV: 72%
    Prepayment: Defeasance
    Guarantee: Non-recourse
    Lender Fee: None

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    $7,650,000 For Purchase of 12.66 Acre Parcel of Vacant Land; 65% LTV

    January 9, 2019

    Transaction Description:
    George Smith Partners secured $7,650,000 in proceeds for the acquisition of a 12.66 acre parcel of undeveloped and unentitled land in a major city in the Western United States. The proceeds represent 65% of the appraised value of the land. The loan carries a 12 month term with two, 6 month extensions available. The loan is fixed at a rate of 10% annually and is prepayable at any time.

    Challenges:
    GSP surveyed the market and found that many lenders would only finance the acquisition at 50% LTV. Other lenders could meet the Sponsor’s desired leverage but quoted an interest rate in the low teens. Some capital providers were concerned about the Sponsor’s ability to secure a takeout construction loan next year, and would only finance the purchase if pre-leasing was in place. The Sponsor intended to sell a small portion of the land shortly after closing. The parcel is located in a market that is growing rapidly, but experienced a large downturn during the last recession. There is still a lot of undeveloped land in the immediate area.

    Solutions:
    GSP provided extensive comparable data that demonstrated the Sponsor’s acquisition price per acre was well supported by the market. Since national lenders were hesitant to provide sufficient leverage, GSP focused on local lenders that know the market well. Emphasis was placed on the enormous amount of new development currently underway in the same market as the subject, including a new big box retail store slated to open later this year. The Sponsor had already successfully developed a mixed-use project in the same submarket, demonstrating their ability to execute a complete business plan. The Lender provided a release provision that allows part of the parcel to be sold to a third party without the requirement of any additional pay down from the Sponsor. The third party appraisal supported a value higher than the purchase price, validating the Lender’s cost basis and resulting in them increasing the loan amount while we were under application.

    Rate: 10.0%
    Term: 12 months + 6 + 6
    Amortization: 30 years
    LTV: 65%
    Prepayment Penalty: None
    Lender Fee: 2.5%

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    $12,790,000 Multifamily Financing in Odessa, Texas

    January 9, 2019

    Transaction Description:
    George Smith Partners placed the first major four property/228 unit Multifamily portfolio financing in Odessa/Midland, Texas.  The non-recourse, fixed rate loan is priced at 5.8% fixed for 10 years at 75% LTV.

    Challenge:
    In 2013, Odessa was one of the fastest growing multifamily markets because of the oil/energy industry, even though it is one of the smaller MSAs in the country. In 2014 downward pressure on oil/natural gas caused a downturn in employment and real estate markets. Because of the market volatility only a limited number of lenders felt comfortable with the Odessa market. Before the rebound in 2018, apartment building values had fallen by over 20%.

    Solution:
    GSP highlighted market potential based on the rebound in housing and employment and was able to identify a capital provider who was comfortable with this tertiary market and its’ recent rebound. Because of GSP’s extensive market knowledge we were able to lock-in a rate of 5.80% fixed for 10 years. GSP did research in the oil market and the MSA of the subject property and was able to prove to the Lender the future stability of the properties’ cashflows.

    Rate:5.8%
    Term: 10 Years
    Amortization: 25 Years
    LTV: 75%
    Guarantee: Non-recourse with Yield Maintenance
    Lender Fee: None

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    Acquisition Bridge Financing for a Vacant 10 Unit Multifamily Property in the West Adams submarket of Los Angeles; 70% Loan to Cost at a 5.75% Rate

    December 19, 2018

    Transaction Description:

    George Smith Partners arranged acquisition bridge financing for a value-add multifamily property in the West Adams submarket of Los Angeles. The 10 unit 1970s vintage property was being delivered vacant and with significant deferred maintenance. The Sponsor’s business plan was to optimize the unit mix by reconfiguring the mostly two-bedroom one-bathroom units into a majority two-bedroom two-bath units. This would maximize square footage by enclosing the tuck under parking, which also eliminates the need for a soft story retrofit. Sized to 70% of total project cost, the loan includes 100% of future funding for a full gut renovation of unit interiors and an exterior upgrade. The two year bridge loan is interest only and floats at Prime plus 0.5% (5.75% today) with no prepayment penalty. Interest is not charged on the holdback until funds are drawn. Although the Lender’s appraisal came in weak and could have resulted in lower loan proceeds, GSP was able to work with the Lender to demonstrate the strength of market sales and rent comps to preserve the loan amount agreed to in the term sheet. The Lender fee was negotiated down to 0.5%.

    Rate: Prime + 0.5%
    LTC / LTV: 70% / 65%, including 100% of future funding
    Term: 2 Years
    Amortization: Interest Only
    Prepayment Penalty: None
    Recourse: Full Recourse
    Lender Fee: 0.5%

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    $5,918,000 Cash-Out Multifamily Refinance Sized to 1.2 DCR on an Actual Mortgage Constant

    December 19, 2018

    Transaction Description:

    George Smith Partners secured $5,918,000 in proceeds for the cash-out refinance of a 48-unit multifamily property located in Los Angeles. The return of funds represents a majority recapitalization of Sponsor purchase equity prior to their unit upgrade investment. Fixed at 4.58% for 10 years, the loan will amortize over 30 years. Proceeds were coverage constrained, sized to a 1.20x Debt Coverage Ratio on the actual mortgage constant. The loan provides for a stepdown prepay from 5%.

    Challenges:

    Since their acquisition, the Sponsor renovated the majority of units. Historical P&Ls demonstrated a recent decrease in collections during months when several units were under renovation. Several capital providers lowered their proceeds projections due to concerns about the cash flow stability. Los Angeles’ compressed capitalization rates consistently limit loan proceeds below 60% of value due to debt coverage constraints. A majority of local and regional lenders utilize a stressed mortgage constant for sizing, limiting proceeds further.

    Solutions:

    GSP demonstrated that the Property is now stabilized as compared to the immediate market and renovations are substantially complete. GSP identified a lender who underwrote to the in-place rent roll and allocated additional credit for achieving higher income on renovated units. RUBs and proforma laundry revenue collections were utilized in their underwritten net cash flow. Loan proceeds were sized to the actual note rate and were not limited by a stress constant or the Sponsor’s cost basis. Despite a run up in indexes during due diligence, our Capital Provider held the original rate of 4.58% through the 55 day application process.

    Rate: 4.58% Fixed for 10 years
    Term: 10 years
    Amortization: 30 years
    Prepayment Penalty: 5,5,4,4,3,3,2,2,1,1
    LTV: 65%
    DCR: 1.20x

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    $4,930,000 (75% LTV) Acquisition Loan for Single-Tenant Office

    December 12, 2018

    Transaction Description

    George Smith Partners secured $4,930,000 for the acquisition of a single-tenant office. The 30,000 square foot building was built in 1997 and was recently renovated by the seller as part of the tenant improvement package for the incoming tenant. The tenant signed a new, 7-year NNN lease that includes two, 5-year options and has a rental rate that increases by 2.5% annually. GSP was able to secure 75% LTV financing for the Sponsor’s purchase. The 7-year loan is fixed at a 4.875% interest rate for the entire term. It has a 30-year amortization and no prepayment penalty.

    Rate: 4.875%
    Term: 7 Years
    Amortization: 30 Years
    Recourse: Full Recourse
    Prepayment Penalty: None
    Lender Fee: 1.0%