November 25, 2020
George Smith Partners secured a senior bridge loan for a 21,303 square foot office building in Laguna Niguel, CA. The Subject Property was unencumbered; hence the entire loan was comprised of cash-out proceeds which the Borrower is utilizing for a separate project they are developing. The loan represents approximately 60% of the original purchase price and was structured with a 1-year initial term with interest only payments. The loan allows for open prepayment and carries two 6-month extension options.
The loan was collateralized by a recently renovated 21,303 square foot office building. The building had recently upgraded the facade, landscaping, parking lot, entrance, lobby, bathrooms, HVAC and other interior finishes. A new roof and solar system had also been installed. The building was 47% occupied at loan funding. The first-floor single tenant had vacated at lease expiration several months prior leaving limited debt service coverage and unusually high vacancy compounded by other COVID related issues.
GSP selected a lender that was able to move incredibly quick to accommodate the Borrower’s development timeline. The Lender’s credit department approved the loan one-week post submission and did not require an appraisal to close. The Lender underwrote to the stabilized asset value, closed with no debt service reserve and no personal recourse.
September 30, 2020
George Smith Partners secured a $4,690,000 construction loan with a 2-year term that converts to a 5-year permanent loan upon completion of construction for a total term of 7 years. The loan is for a medical office building in Oxnard, CA. The construction loan floats at Prime plus .5% with a floor rate of 3.75% and the mini perm is expected to have a fixed interest rate of 3.65%. The mini-perm carries a step down prepayment, but there is no prepay during the construction term, allowing the borrowers to secure more advantageous capital depending on the capital markets.
The Sponsorship sought long term construction-to-fixed capital shortly after the government-mandated shelter in place which caused significant disruption to the CRE capital markets. GSP needed to secure a high leverage loan to complete the ongoing construction of the Project which had commenced in 2019. With active construction on the Project, GSP needed to secure a lender capable of understanding various lien priorities, a historic building designation that changed construction plans and timelines, vandalism, and a change of general contractors all during the COVID-19 pandemic.
GSP was able to demonstrate the necessity of new medical offices during the height of the shutdown to generate a competitive lending environment, and to secure the 70% LTV construction loan. To reduce valuation risk, GSP negotiated that the existing appraisal performed pre-COVID would be utilized by the selected lender. To obtain maximum proceeds, GSP also worked with the Lender to collateralize adjacent unentitled land owned by the Sponsorship. The vandalism and the historic designation caused delay. However, GSP showed that the change in the GC was a strategic move that would allow for the completion of the construction and the ability of the sponsorship to obtain C of O in early 2021. This will allow the Sponsorship to hold the completely modernized Medical Office building with a fixed low rate through 2027.
$8,350,000 in Non-Recourse Permanent Bank (non CMBS) Financing for a Medical Office with 86% Occupancy, 3.88% Fixed Rate; Tampa, FL
November 20, 2019
George Smith Partners secured $8,350,000 in non-recourse permanent bank financing for a 44,000 square foot medical office property in Tampa, Florida. Although the Property was only 86% leased at closing, the Sponsor required non-recourse, permanent financing from a portfolio lender and was not open to a CMBS execution. For tax purposes, the Sponsor also required a lender that would not require a new single purpose borrowing entity. After an extensive marketing effort, GSP sourced a bank lender that specializes in financing healthcare related properties. Sized to 65% of value, the 7-year execution carries a fixed rate of 3.88% as a result of a SWAP executed by the bank at application at no additional cost to the Sponsor. In addition to being non-recourse, the loan structure offers two years of interest only followed by a 30 year amortization (as opposed to a 25 year amortization, which is more common for a commercial, non-multifamily property). The loan carries no prepayment penalty apart from SWAP breakage.
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
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.
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