$13,944,000 ($1,180/SF) Non-Recourse Construction Financing for the Redevelopment of a Former Single-Tenant Office Property in Santa Monica, CA
June 12, 2019
George Smith Partners placed $13,944,000 in non-recourse construction debt for the conversion of a former single-tenant office property into an 11,800 square foot, luxury, multi-tenant retail property in a prime submarket of Santa Monica, California. GSP diligently worked to source a lender comfortable with funding a loan at a high basis of $1,180/SF for a “first-mover” redevelopment that was 64% pre-leased (on an economic basis) at record-setting rents to a mix of local and regional food and fitness users. Further complicating the loan request was the need to allocate separate components of the “bad boy” non-recourse carve-outs among two unrelated guarantor entities. Approximately 55% of the loan proceeds were future funded with no interest paid on unfunded loan proceeds until drawn.
Rate: One-Month LIBOR + 4.25% (6.75%) at closing burning down to One-Month LIBOR + 3.75% (6.25%) upon stabilization
Term: Three-year initial term plus two one-year extension options
Amortization: Interest only
Debt Yield: 8.5% stable debt yield
LTV: 70% as-complete value, 60% as-stable value
Prepayment: Open prepayment with 24-month spread maintenance
Lender Fee: 1%
May 6, 2019
George Smith Partners placed a $10,000,000 cash-out refinance of a 100% owner/user corporate office and assemblage facility in Orange County, California. Excess proceeds were used to address a loan maturity for other unrelated real estate. Those other assets are un-stabilized but located in primary in-fill Los Angeles markets. Although proceeds were allocated to other real assets our Capital Provider only collateralized the subject Property. Their exit will occur post-reposition of the other assets and the portfolio will be recapitalized with traditional institutional debt. An MAI was not required; thus the loan was sized to 60% of estimated value. Fixed at 7.82% for 12 months, this non-recourse bridge loan does not carry a pre-payment penalty. Closing was executed within 10 days of solicitation of this loan request.
$3,120,000 for Purchase of 30,000 SF Office Property in the San Fernando Valley; Non-Recourse Financing at 60% LTV
April 10, 2019
George Smith Partners secured $3,120,000 in proceeds for the purchase of a 30,000 SF office building located in the San Fernando Valley. The Lender provided a Non-Recourse loan that was 60% of the purchase price at a rate of 4.85% fixed for five years.
A number of challenges were encountered while discussing the transaction with lenders. The tenants at the Property consisted of small businesses renting 1,000-2,000 SF suites, many of whom are under month to month (MTM) leases. This caused some concern about the stability of cash flow. The Seller’s historical P&Ls included many corporate and non-recurring expenses. Based on these P&Ls, several lenders quoted proceeds of just 50% of the purchase price. An environmental screen mandated a Phase II subsurface investigation.
GSP demonstrated that although some tenants were under MTM leases, they were long term occupants that had only converted to MTM when their lease expired. Overall, historical occupancy was very high because tenants like the unique features of the building. Additionally, our team demonstrated the Sponsor’s successful track record bringing operating expenses in line with typical office properties. As a result, the selected lender was able to underwrite to a normalized expense ratio. The Phase II report indicated that no remediation is required. The loan closed in about 60 days.
$15,880,000, 70% Loan-to-Cost Financing at LIBOR + 1.95% on an 82% Occupied Suburban Office Building with Near-Term Tenant Roll
April 3, 2019
GSP arranged the $15,880,000 partial-recourse first mortgage from a national commercial bank on a 1980’s-vintage multitenant office building in the Dallas/Fort Worth market. The Property was 82% occupied at loan closing, with an additional 10% of space likely to be vacated by a major tenant approximately six months after closing and an additional 35% of the leased square footage rolling within the three year loan term. The loan is structured as an initial $11,860,000 advance, with a further $4,020,000 to be funded for tenant improvements and leasing commissions tied to future leases. The loan requires no additional leasing reserves, and interest is not paid on the $4,020,000 until drawn.
The 70% of cost first mortgage priced at one-month LIBOR plus 1.95% and required interest rate protection to hedge no less than 75% of the loan amount for the first two years of the term, to be renewed for 100% of the loan amount prior to year three.
March 13, 2019
George Smith Partners successfully arranged financing for a 25,000 sq ft office property in the Georgetown neighborhood of Seattle. The Sponsor purchased the Property to capitalize on the success of the adjacent property, the Seattle Design Center, which is showroom space for design-related tenants.
While the Sponsor intends to add value through improving the physical appearance of the building and lease it to creative or design-related tenants, the building had existing tenants at below market rent with lease expirations through 2021. Many lenders were not comfortable with the Sponsors ability to negotiate with the existing tenants to vacate. Lenders were also concerned with the depth of tenants in this submarket as it is in the midst of gentrification.
George Smith Partners located a lender that was comfortable with the Sponsors track record in the submarket and with the value-add business plan. The Lender was able to provide a short-term, fixed rate loan that provided reserves for the capital improvements to the façade and tenant improvements for the interior units.
$22,050,000 Non-Recourse, Acquisition and Development Financing to Reposition a 100,000 Square Foot Mixed-Use Building in Phoenix, AZ
February 20, 2019
George Smith Partners secured $22,050,000 of non-recourse acquisition and development financing for the reposition of a 100,000 square foot mixed-use office building and a 334 stall parking garage located in the Roosevelt Row Art’s District of Downtown Phoenix. The main tenant of the building recently vacated, leaving the Property with low occupancy. The Sponsor was able to acquire the asset with LOI’s for several large tenants in tow. The business plan was to reposition and stabilize the remainder of the mixed-use building after executing the leases shortly thereafter.
Sized at 70% of total project costs, the loan includes a future funding facility to cover tenant improvements and leasing commissions. The rate floats at 30 Day LIBOR plus 6.85% and carries a two year term with a one year extension option. The Lender was able to underwrite and deliver an executable term sheet in less than 48 hours. The loan funded roughly three weeks from the date of the application, meeting the required short window for closing. The Sponsor was also given occupancy credit based on the LOI’s, with executed leases allowed as a post-closing item. This offered the Sponsor more time to negotiate more favorable lease terms.
January 30, 2019
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.
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.
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.
December 12, 2018
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.
October 3, 2018
George Smith Partners arranged perm financing for the refinance of a 14-unit office building in North Hollywood, California. The Sponsor was operating his business in the largest unit on the ground floor and was looking for maximum cash out while locking in a new fixed rate before the Fed increased rates. GSP worked closely with a lender who would utilize market rent on the owner user portion in order to increase the debt service coverage ratio and maximize loan proceeds. Despite the fact that the Sponsor didn’t have a lease on himself, GSP and the Lender worked hand in hand to ensure that market rent would be factored into the Lender’s underwriting on the Subject Property.
Most lenders would not utilize market rent for the owner used portion and wanted to internally underwrite the loan to 13 units. This would cut loan proceeds by $320,000 because the owner’s unit made up 18% of the Property’s income. Additionally, the appraisal came back with a remaining economic life of 20-years. As a result, the Lender adjusted their amortization to 20-years matching the remaining economic life of the Subject Property.
George Smith Partners worked closely with the Lender to guarantee they used market rent in their underwriting to ensure the cash out proceeds would be met. When the remaining economic life came back at 20-years, GSP provided historical documents and property data to the Lender and the Appraiser illustrating how the remaining economic life of 20-years was incorrect. GSP leveraged their long standing lender relationship and worked carefully with the appraiser to get the amended economic life up to 30-years. , This allowed the Lender to adjust their amortization back to 30-years as well.
Term: 5 Years Fixed, 30 Year Term
Amortization: 30 Years
Recourse: Full Recourse
Prepayment Penalty: 4,3,2,1
Lender Fee: None
- Advisors: Reuven Risch
October 3, 2018
George Smith Partners arranged $25,000,000 of Mezzanine construction financing and supported the sponsor in negotiating the $80,500,000 senior financing for a speculative, mixed-use, office and retail project located on North Scottsdale Boulevard and Tempe Town Lake in Tempe, Arizona. This phase of the development includes 250,000 square feet of a 15 story, Class A, high rise office space and 44,000 square feet of lifestyle retail space.
Given the perceived historical volatility of the Phoenix and Tempe office markets, and the speculative nature of the business plan, many potential investors were unwilling to take on the risk. Preleasing was critical to the advancement of the Project and to the capital markets. The Senior Lender mitigated the uncertainty by requiring a minimum leasing threshold to be achieved prior to advancing any loan proceeds. However, the local leasing market would not commit to new leases without a committed delivery date.
The Sponsor, with George Smith Partners’ assistance, was able to develop an alternate structure to the Senior Loan. This allowed the Sponsor to fully engage the equity solution and provide a certain completion date to the Lenders and the tenant market.
TERMS ARE CONFIDENTIAL
- Advisors: Scott Meredith
September 12, 2018
George Smith Partners successfully placed $8,500,000 in permanent financing for the refinance of a 270,000 square foot Class B office building located in the heart of Downtown St. Louis, Missouri. The Building has a unique combination of national and local office tenants, as well as storage and data center space. The Property previously had an expensive floating rate bridge loan and the Borrower engaged GSP to find cheaper long term fixed rate debt. GSP ultimately sourced a 10 year non-recourse loan with a fixed rate of 5.39%. The loan is interest only for 10 years.
Numerous lenders where not interested in the Property because they were not comfortable with the St. Louis office market which has a soft market occupancy. Additionally, while the Building has strong cash flow, it appeared to have a weak occupancy, which caused lenders to view the Property as unstabilized. As a result, many lenders were not comfortable placing long term fixed rate debt on it. Additionally, many of the smaller tenants in the building were on month to month leases, so most lenders would not give credit to that income. Finally, the seemingly volatile historical occupancy of the Property was concerning to lenders.
It became evident a large amount of the building’s “vacant” space was actually unusable space. Due to tenant changes over the years, floor space that was previously leasable had become common area space that is now unleasable. As a result, the Property’s occupancy was significantly higher than what it originally appeared. GSP calculated about 20% of the square footage previously counted in the square footage was actually unusable space/common area space. GSP was able to prove to both lenders and appraisers the building was stabilized, it’s cash flow was strong, and its true occupancy was in line with the local market. GSP also demonstrated it was irrelevant to look at any issues with historical occupancy in the Project. Once the current Sponsorship took control of the building, they immediately improved all aspects of the Property. In addition to investing significant capital to improve the Property, they also immediately increased the occupancy, cash flow, and overall quality of the Property.
Hollywood, CA – $34,900,000 Recourse Interest-Only Loan Fixed for 10 Years on Single Tenant Class A Office Building
July 25, 2018
George Smith Partners arranged a $34,900,000 permanent loan to refinance a 60,834 square foot Class A office building in the heart of the Sunset and Vine office corridor in Hollywood, CA. The Sponsors acquired the property in 2016 with significant deferred maintenance. They completed an extensive facelift and interior renovation to convert it to Class A creative office space. The property is now 100% leased to a single-tenant who will take occupancy in 4Q 2018. GSP’s task was to create a competitive market place in an effort to arrange the lowest-priced and most flexible financing available. The chosen lender loved the opportunity so much, they circumvented the market by offering what many might have perceived as above market terms to capture the business. The loan structure includes 10 years of interest-only, no reserves during the entire loan term, and a fixed rate for 10 years at 4.78%.
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