October 8, 2019
George Smith Partners secured a $6,870,000 cash-out refinance loan for a 43,435 square foot medical/office property in Los Angeles. The loan represented 70% of value and a 1.25x debt coverage ratio. Our team helped the Sponsor secure the previous loan about a year ago at a time when the Property had 20% vacancy. Due to the considerable upside potential, the Sponsor had deliberately chosen a loan with no prepay. Since then, they successfully signed several new leases and achieved 100% occupancy.
In a survey of the market, GSP found that other lenders were limited by a higher stress rate, an above-market vacancy factor, or a lower LTV constraint. The selected Capital Provider had none of these constraints and was able to provide proceeds $300,000 higher than the rest of the market. The new Capital Provider was also able to provide the Sponsor full credit for the new leases without a seasoning requirement. The Capital Provider also included cash flow from month-to-month tenants and short-term tenants in their underwritten cash flow. As a result, the loan provided a considerable return of equity to the Sponsor. The loan was quoted at a rate of 5 year CMT + 2.55% with no floor. During application, the index rate declined by about 30 basis points. At loan approval, the rate was fixed at 3.98% for 5 years.
$7,600,000 in Non-Recourse Permanent Financing for a Single Tenant Medical Office Property with 100% Lease Roll During the Loan Term
March 6, 2019
George Smith Partners secured $7,600,000 in non-recourse permanent acquisition financing for a 38,000 square foot medical office property in Lowell, Massachusetts. The Property was 100% leased to a single tenant with strong credit but with only five years of remaining lease term. Despite the limited lease term, the Sponsor sought long term permanent financing that exceeded the lease term, which is difficult to obtain.
After an extensive marketing effort, George Smith Partners sourced a national lender with a favorable view of medical office properties and a history of providing permanent financing on properties with significant near term lease roll. Sized to 65% of value, the 10-year fixed-rate execution is non-recourse and amortizes over 30 years. The interest rate was fixed at 5.12% at closing or 242 basis points over the 10 Year Swap Rate.
February 13, 2019
George Smith Partners successfully completed a $10,000,000 refinance of a single-tenant medical office with an NNN lease with 14 years remaining. GSP arranged this 15 year, fixed rate loan with a rate of 4.82%. The first 5 years are interest only and then the loan converts to a 30 year amortization. The loan also features a step-down prepayment instead of typical yield maintenance.
The first challenge dealt with the remaining lease term. It is customary for loan terms especially on non-recourse loans to be at least 2 years shorter than the lease term on single tenant buildings. In this case, 14 years remain on the single tenant lease and the Sponsor wanted a 15-year term.
The second challenge was that the lease was to an entity that was a partnership between a local doctors group and an investment grade hospital without a guarantee from either group.
Because the building was well located in a high demand market, GSP did extensive market research and looked at the value from two different perspectives. First we looked at it from the perspective of the Tenant staying in the building and secondly we looked at it from the perspective of the Tenant moving at the end of the lease term. We proved it would be very hard and unlikely for the Tenant to relocate in Santa Monica. Using GSP’s relationships, market experience and medical office expertise, we were able to identify a lender who understood our view of the market and accepted it. The Lender was willing to do a 15 year fixed rate financing beyond the term of the lease. It was non-recourse to the Sponsor and had no guarantee from the Tenant.
January 15, 2019
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.
October 31, 2018
George Smith Partners secured $6,100,000 for the cash out refinance of a 25,378 square foot owner-user medical office building in Oxnard. Constructed in 1990, this building was recently modernized and is fully occupied. The Borrower was able to rate lock at application an interest rate of 4.375% fixed for seven years. The loan has a 30-year amortization and a 5,4,3,2,1% step down prepayment penalty.
The asset is a 51% owner-occupied medical office building that leased the remaining non-owner occupied suites to specialized medical professionals. The building is one of the premier office buildings in Oxnard and has a true medical tenant base. Given the niche nature of the asset and tenant base, it was difficult to find comparable properties in this sub-market. Further, the owner-occupied suites have rental rates that are slightly above market and were marked-to-market during the valuation process. The Borrower was seeking maximum leverage to recapitalize equity invested in capital improvements as well as pay off an existing SBA loan, thus the valuation of the asset was a critical component to the loan structure.
GSP worked with a Capital Source that understood the strength of the asset and the Sponsor as well as the value of the owner-user component. The Lender saw the opportunity to expand the relationship beyond this one financing. Extensive upfront market data was required to fully understand and support the property valuation during the appraisal process due to the lack of comparable assets. GSP was also able to receive approval for a higher LTV than originally negotiated and secure a 2nd trust deed in order to deliver the total commitment amount that was determined in the LOI. Our Sponsor was able to benefit by receiving a very low 7YR fixed rate with the cash-out proceeds projected for their business plan with no leases required for the owner-user suites or any TI/LC Reserves.
Structured Financing: $10,000,000 Non-Recourse Cash-Out Refinance for Medical Office in Tertiary Virginia Market
May 23, 2018
George Smith Partners successfully structured a $10,000,000 non-recourse, cash-out permanent loan secured by a 44,250 medical office building in a tertiary northern Virginia market outside of Washington D.C. In the current rising interest rate environment, the Sponsor’s goal was to lock-in a long term, low interest rate loan while freeing cash for other investment projects. Although the transaction was complicated by the lack of available market information, GSP sourced the loan with an experienced, sophisticated investment bank who not only became comfortable with the market, but also understood the asset quality together with the Sponsor’s operating experience and financial strength. GSP worked together with the lender to guide the first-time CMBS borrower through the comprehensive transaction process. Priced at 10-Year Swaps + 2.00% (4.98% coupon), the 10-year fixed rate loan sized to 70% of value with a 30-year amortization schedule, and a 1.25x debt coverage ratio.
Rate: 10 Year Swap + 2.00% (4.98% coupon)
Term: 10 Years Fixed
Amortization: 30 years
Lender Fee: Par
Prepayment Penalty: Defeasance
- Advisors: Loren Bedolla
May 16, 2018
George Smith Partners secured a $4,500,000 cash-out refinance loan for a 43,435 square foot medical/office property in Los Angeles. Within the past year, the Borrowers had successfully secured a number of new leases, considerably improving cash flow. GSP sourced a lender to pay off the in-place loan and provide a partial return of equity. Although the property has several anchor tenants under long term leases, multiple tenants continue to operate under month-to-month leases. GSP demonstrated that these tenants had remained in place for several years and maintain a close relationship with the Sponsors. Because of this relationship, our capital provider included cash flow from month-to-month and short-term tenants in their underwritten cash flow. The loan closed 50 days from application.
June 27, 2017
George Smith Partners secured $9,050,000 of refinance loan proceeds with a national balance sheet lender for a 47,000 square foot medical office building in the San Gabriel Valley, approximately 25 miles east of downtown Los Angeles. Fixed at 3.51% for five years and sized to 60% of value, the loan will amortize over 25 years and carries a yield maintenance prepayment penalty. There was no origination fee and the portfolio lender paid for all third party reports.
The property is owned under a Tenants-In-Common (TIC) structure, precluding most capital providers from funding the non-single purpose borrower. The TIC ownership also created a need for extensive documentation on all investors. Our secondary market location and nearest hospital located eight miles from the subject added additional drag on the refinance request.
Our balance sheet capital provider accepted the TIC structure subject to underwriter all individuals with ownership over 20%. Historical financial data documented the remarkable stability of cash flow with medical office tenants despite not being adjacent to a hospital. GSP surveyed the market and demonstrated that although the property was not located near a hospital, it offered medical providers and services that were unique to the area. This resulted in high patient volume and long-term tenants.
July 6, 2016
George Smith Partners successfully structured and placed the non-recourse acquisition bridge loan for a medical office building adjacent to a Los Angeles hospital. Our Sponsor will complete a significant capital improvement plan and increase rents upon lease roll-over. The 95% physical occupancy at close supports this business plan as there is significant market demand yet very little supply. Sized to a 9.0% in-place debt yield, additional advances will be funded to maintain the 9.0% debt yield as NOI is increased. Future disbursements will fund capital to complete upgrades as well as pay for tenant improvements and leasing commissions. Interest is only paid as funds are disbursed for the first two years of the five year term. Priced at LIBOR plus 255, there is no prepayment penalty.
March 16, 2016
Transaction Description: George Smith Partners successfully secured the 70% of cost acquisition of a 39,000 square foot on-campus medical office building in Gardena, California. Initially master leased to the adjacent hospital, the master lease expired a year prior to this acquisition. Allowing for the first year of interest only, the bridge to perm loan is fixed for five years at 4.25% and will amortize over 25 years for the balance of the term. This loan was sized to a 1.20 debt coverage ratio on the interest only debt service payment against the actual cash flow at the time of funding. Prepayment steps-down from 4% and is open without prepayment for the final year. This structure includes a one-time future earn-out of $627,000 should the subject obtain 90% occupancy within the first year.
Challenges: Most of the tenants were on month-to-month or had no lease in place; seller historical operating history was incomplete. Physical occupancy was only 79% at application and those tenants with leases presented significant turnover during the first few years of the loan. Minimal in-place cash flow at funding challenged loan proceeds. Our Sponsor did not have any experience owning or operating medical office real estate.
Solutions: Estoppels were secured for underwriting to back-fill incomplete P&L statements. Two lease extensions were negotiated and executed with current tenants to minimize the rollover exposure. By sourcing a capital provider whose DCR requirement was based on interest only payments, we were able to maximize loan dollars while meeting their underwriting guidelines in spite of the property’s low, in-place NOI. Market strength and hospital campus location supplemented the Borrowers’ financial strength. A 3rd party property management company was engaged for day-to-day operations.
Term: 5 Years
Interest Only: 1 Year
Amortization: 25 Years thereafter
Lender Fee: .25%
Prepayment Penalty: 4,3,2,1, Open
Debt Coverage: 1.20 Based on IO Debt Service
- Advisors: Shahin Yazdi
September 2, 2015
GSP arranged the $18,037,500 non-recourse first mortgage from a regional commercial bank on the acquisition of an 114,471 square foot, 1940’s San Gabriel Valley medical office building. The loan allows the opportunity for the Sponsor to redevelop an approximately one-acre surface parking lot at a future date. GSP sourced a lender who was comfortable with the numerous month-to-month tenants in the mid-century vintage, masonry construction building. The subject is not adjacent to a complimentary hospital system. Sized to 65% of purchase price, the first mortgage priced at one-month LIBOR plus 2.65% (2.90% all-in today with a 25 basis point floor) and required a LIBOR cap with a 3.00% strike price for the first two years of the term. The LIBOR cap renewal structured for the third year reduced the cap cost to Borrower by shortening the cap’s duration. Interest only for the first 12 months, the 3 year term amortizes over 25 years for the remaining loan term.
August 20, 2015
Transaction Description: George Smith Partners placed the bridge refinance for a newly constructed medical office building in Decatur, Georgia. The 33,685 square foot structure was developed for multi-tenant use. An interim bridge loan was required to finish outstanding tenant improvements, payoff property liens and bring the asset to stabilization for perm financing. In-place cash flow is not sufficient to service the debt; an interest reserve was funded to cover the short-fall. Sized to 72% of As-Is value, the recourse loan is fixed at 11%, Interest Only for 6 months and was funded within four weeks of application.
Challenge: The existing loan had matured and borrower was in technical default, paying default interest rates. Certainty of execution and speed were compulsory as it was just weeks away from foreclosure. Tenant improvement costs exceeded budget, requiring additional proceeds to complete the build-out prior to occupancy.
Solution: GSP identified a private capital source who took the time to understand and become comfortable with the Sponsor’s business plan and the property’s intrinsic value. Once the capital’s interest was confirmed, GSP vetted the transaction risk exposure and structured the loan criteria to avoid closing pitfalls, satisfying both Borrower and Lender. Funds were allocated to finish outstanding tenant improvements, payoff mechanics liens and provide for a viable refinance exit.
Term: 6 Months
Amort: Interest Only
- Advisors: Gilda Rivera
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