$15,400,000 Non-Recourse Acquisition Financing for Office Tower; 3.68%; 70% LTV; 10 Year Interest Only; San Fernando Valley, CA
August 14, 2019
George Smith Partners secured $15,400,000 in non-recourse acquisition financing for an office tower located in the San Fernando Valley. The loan is fixed at 3.68% for 10 years with full term interest only payments. The proceeds represent 70% of the acquisition price.
The Property has over 40 tenants and many leases will roll within the next 2-3 years. Shortly before the PSA was signed, a major tenant moved out resulting in vacancy of 10%. The Property receives income both from cell tower leases and excess parking capacity, but many lenders do not give credit for these types of revenue. The seller included both regular operating expenses and capital expenditures in the historical P&Ls.
GSP demonstrated that the Property had historically high occupancy above 95% and provided data that demonstrated the strength of the local office market. This made the Lender comfortable with the short term leases and the temporary increase in vacancy. Additionally, while the loan was in application, the Sponsors signed a new lease to bring occupancy back up. The Lender did not require seasoning on this new lease. The Lender was able to include cell tower and parking income based on the historical P&Ls. Finally, GSP obtained the Seller’s general ledgers and was able to separate out major capital expenditures from the P&Ls. The Lender was ready to move quickly and close in about 30 days, but the Seller requested an extension and the loan closed about 50 days from application.
July 10, 2019
George Smith Partners successfully arranged a $10,200,000 refinance of a 69,552 square foot, multi-tenant office building in San Diego. The permanent recourse financing is fixed at 3.68% for the first five years with a rate reset for the remaining five years. The loan amortizes for 25 years with a declining step down prepay penalty.
There is rollover risk of approximately 53% of the square footage from the largest tenant, with their lease expiring in three years. Because of this, other lenders proposed limited loan terms of five years or less or simply declined the financing request. Lender’s willing to finance required reserves to mitigate the rollover risk which was unappealing to our Sponsor.
George Smith Partners worked with a new banking relationship who was able to get comfortable with the rollover risk given the conservative 56% loan to value request. The strength of the Sponsor and longevity of ownership helped the Lender meet the Sponsor’s financing requests.
$3,900,000 Cash-Out Permanent Financing with Full Term Interest-Only After Exchange; Los Angeles, CA
July 2, 2019
George Smith Partners financed the purchase of a mixed-use retail/office building in Los Angeles, California, last year, using a 1031 exchange. GSP used our vast experience with tax differed exchanges to arrange a cash-out financing with a seven-year fixed rate and is full term interest-only. The cash- out was used to purchase a new property and the Sponsor was able to reinvest their entire exchange in the purchase to differ any taxable gain. The new refinance allowed the Sponsor to pull cash out from the property tax free and use that cash to grow his real estate portfolio. While the cap rate at purchase was very low, the Property’s value will continue to increase due to its location in a great Los Angeles neighborhood. In a traditional loan, the Borrower would be limited on the loan size and cash flow but structuring the full term interest-only loan allowed the Sponsor to achieve positive cashflow and acquire the new asset without issue.
$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
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