Industrial

Transaction Description:

George Smith Partners secured $43,500,000 in bridge financing collateralized by a 95% vacant, 2.2MM square foot industrial building in a secondary Midwestern market. The building was constructed through the 1950s and 1960s by a major retailer and used for many years as a major distribution center. As internet retail ate into the tenant’s business, the building slowly lost its business importance to the prior owner. The Borrower, a well known owner and operator in the area bought the Property off market unoccupied approximately one year ago and has been improving the property and been in leasing talks with an array of strong tenants. The lease that occupies 5% of the building is attributed to a third party logistics subsidiary of the Borrower.

Sized to 80% of stabilized value, proceeds from the bridge loan take out the Borrower’s original acquisition loan and bought out an institutional Preferred Equity investor. The Borrower now owns the property free of all third-party equity investors. Additional loan proceeds will also be used to cover closing costs and fund future work, including CapEx and leasing costs associated with repositioning the 60-year-old building. The financing secured by GSP not only allowed the Borrower to recap out their equity partner and claim exclusive ownership rights to the asset, but also gave them the final renovation dollars required to attract new tenants and eventually bring to Property to stabilization.

Transaction Description:
George Smith Partners secured $15,000,000 of cash out refinancing of a single-tenant distribution warehouse in West Rancho Dominguez, an unincorporated portion of Los Angeles County. This was a permanent, non-recourse loan at 4.78% fixed for 5 years with 25 years amortization. The flexible prepay, which is non-typical of Life Co’s yield maintenance, was very appealing to the Borrower (locked for 12 months, 3-2-1, then open at par for the last 12 months).

Challenges:
Full cash out with $15,000,000 in proceeds for a foreign borrower who built this property in 2008 for less than $9,000,000. The existing single-tenant is a privately-owned entity that is “non-credit” with its lease rolling in less than 4 years without extensions. The in-place rent is currently 30% below market which limited other loan proposals between $9,000,000 and $11,500,000 in max proceeds.

Solutions:
George Smith Partners worked with an existing life insurance company lender relationship that was able to provide a structured permanent loan solution by underwriting to market rental rate rather than the in-place income. This made the loan metrics work for the Lender (8.6 Debt Yield & 1.26 DCR). These assumptions were in turn verified and confirmed by a national appraisal firm.
The Asset is relatively new construction and considered a class-A property. Furthermore, the Los Angeles County industrial market is supply constrained which makes this asset category one of the most appealing in CRE today.

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.

Transaction Description

George Smith Partners secured $25,500,000 in bridge financing collateralized by a 72% occupied, multi-tenant, 55-acre industrial park in St. Louis, Missouri. Sized to 70% of as-stable value, proceeds from the interest-only bridge loan were used to refinance out two existing permanent loans, cover closing costs and fund 100% of future costs, including CapEx and leasing costs, associated with the final reposition of the 100-year-old industrial park. The borrower had previously upgraded a portion of the Property, including replacing obsolete structures with new tilt-up buildings, however wanted to also take advantage of recent lease expirations within the functionally obsolete suites. The financing secured by GSP will allow the Borrower to modernize and upgrade the structures in an effort to further improve the park and capitalize on St. Louis’s strong industrial market fundamentals, and the Borrower will benefit from the resulting higher rents and additional cash flow after debt service without having to invest additional equity.

The Property’s existing improvements vary with respect to age, functionality and uses, which made it difficult for the borrower to define a specific suite-by-suite future funding budget. In line with the flexibility required by Borrower’s business plan, the Lender allowed the future loan funds to be pooled in lieu of allocating the capital budget on a suite-by-suite basis since the re-tenanting costs will vary based on each future tenants’ specific use. The loan also provides flexibility with interest paid only on drawn funds plus a nominal 1% prepayment penalty during only the first 12 months of loan term allowing payoff at par thereafter.

Transaction Description:

George Smith Partners placed non-recourse financing to take-out an existing construction loan on a 59,375 square foot multi-tenant flex industrial building located in an Austin suburb.  In addition to paying off the recourse construction loan, the Sponsor received a notable return of equity.  Located adjacent to a residential housing PUD, the commercial real estate is subject to the Homeowners Association’s CC&Rs.  Fixed at 5.44% for ten years, prepayment steps-down from 10%.  Amortization commences after the first year of interest only and is spread over 30 years.

Challenges:

During due diligence, it was determined the CC&Rs were not securitizable without a material modification precluding the HOA from inhibiting specific tenant uses on the subject property.  Our bank ordered MAI appraisal value was below expectations.  One tenant representing 12% of the net rentable went into monetary default and vacated the premises but did not turn the space back to management.

Solutions:

GSP identified a portfolio lender who became comfortable with the use subject to receiving an estoppel from the HOA.  Although the potential remains for future changes/impediments from the HOA board, the lender obtained a high level of comfort that the current uses were grandfathered in and the HOA would not play an active role in their neighbor’s operations.  The Sponsor, Lender and GSP provided additional sale comparables to support a higher value.  The lender agreed to raise their LTV constraint by 3 percentage points to maintain proceeds.  A tenant Improvement & lease commission reserve was funded at close to be reallocated for releasing the dark space.

George Smith Partners secured $4,950,000 of permanent financing for two industrial buildings (one single tenant, one two tenants) located in Castaic, California. The 30-foot clear height buildings are located side-by-side and collectively total 57,825 square feet. One of the properties was constructed in 2011, while the other was built in 2016. The buildings are both 100% occupied but all of the tenants have lease terms that expire within the next four years. GSP was able to identify a capital source that would provide a non-recourse, long-term fixed rate loan. The borrower wanted to maximize cash flow which was achieved by taking minimal ongoing reserves, securing a 30-year amortization, and negotiating four years of interest only. The 10-year loan was priced at 5.17% at 65% LTV and offers a stepdown prepayment structure.

George Smith Partners secured financing totaling $7,500,000 on two separate industrial properties in Los Angeles. The properties are occupied by a major domestic furniture manufacturer. The loans provided a return of equity to the borrower. The lender did not require an appraisal, but was able to use market comparables to substantiate the value of the properties. GSP provided extensive market data showing recent transactions of similar properties in order to further support the lender’s value. The lender was ready to close within two weeks of application.

Transaction Description:
George Smith Partners successfully secured $1,325,000 in financing for the purchase of a 9,500 square foot industrial/warehouse building in Los Angeles. The proceeds were structured as $1,125,000 for a first trust deed at a rate of 7.9% and $200,000 for a second trust deed at a rate of 12.99%. The combined proceeds represented 70% of the acquisition price. A number of challenges were encountered in securing financing for the property. First, our Sponsor had to secure financing within 1 week. Second, the subject property was leased to a tenant who was occupying the entire 9,500 square foot property, even though the lease agreement stipulated only 5,000 square foot of space was available to them. While GSP was marketing the deal, legal proceedings were underway to compel the tenant to comply with his lease. Finally, there was lease-up risk since it was unclear when the buyer would be able to lease the remaining space to a new tenant. The selected lenders had an intercreditor agreement and were able to offer a quick close with minimal documentation. The lenders required only a property walkthrough in contrast to a full appraisal. GSP provided rent comps that supported the Sponsor’s business plan for the property, as well as market data that showed vacancy of less than 1% for industrial product in the market. As a result, our lenders were able to underwrite to the in-place income of the property, and were comfortable with the value regardless of the outcome of the pending litigation with the tenant.

George Smith Partners placed a $5,000,000 senior trust deed on an existing net-leased container depot in the Inland Empire of Southern California. This location is ideal given the accessibility to the Ports of Long Beach, Northern and Eastern Interstates and within two miles of an industrial railhead. With only 2,000 square feet of improvement on an 11 acre parcel, many capital providers viewed this as a land loan despite the arms-length net lease to a global logistics operator. Our Lender also structured a $1,500,000 line of credit to cover expansion costs of an adjacent parcel to be leased to the same logistics operator. Both facilities carry five-year terms although the senior note is fixed at 4.23% and amortizes over 15 years whereas the Credit Line is priced at Prime + 0.75% and is interest only. The combined debt service underwrote to better than a 1.50 dcr on actual cash flow at close.

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.

George Smith Partners placed the $3,000,000 permanent refinance of a 40,000 square foot single-tenant industrial building in Gardena, California. Sized to 55% of value, the loan floats at LIBOR+1.75% for the 10 year term and is amortized over 30 years netting a substantial cash flow after debt service. Single tenant event risk was mitigated with the low loan to value and the vanilla use of this asset in a strong industrial market. Our Sponsor requested floating rate debt to take advantage of the low LIBOR index as well as maintain flexibility for future equity calls; either through sale or refinance.

Transaction Description: George Smith Partners successfully placed the cash-out refinance of a multi-tenant industrial business park in Portland, Oregon. This non-recourse financing provided for a return of equity with no hold back to our Sponsor while allowing for an opportunity to earn a return on equity once the Borrower finalizes their business plan. At funding the property was 90% occupied in a 3% vacant market. Sized to 65% of current value and floating at LIBOR+4.75% (floored at 5.25%) interest only two years, there is no prepayment penalty or exit fee.