Rate: 5.39% Fixed
Term: 10 Years
Amortization: Full Term Interest Only
Prepayment Penalty: Defeasance
Lender Fee: None
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.
$61,392,000 Refinance of a 207-Acre, Two Million Square Foot Pharmaceutical Campus in Tri-State Area
April 15, 2020
George Smith Partners arranged $61,392,000 in first mortgage debt for the refinance of a mixed-use office, industrial and lab campus in the Tri-State area (New York, New Jersey, Connecticut). The corporate user developed the campus in phases between 1906 and 2008, and the improvements consist of over two million square feet of laboratory, pharmaceutical manufacturing, office and support buildings including a central utility plant. The user still owns some buildings, and leases others on the campus. The Sponsor purchased the asset in 2015 with a long-term redevelopment goal to create a life sciences destination that will build on the existing laboratory, manufacturing, and office uses. The Property will ultimately feature shopping, dining, meeting and educational experiences as part of a cohesive “work/live/play” community.
GSP sourced a loan from a capital provider that was able to underwrite in-place income with flexibility for an ever-evolving business plan. The three-year, interest only initial loan term is structured as an initial advance of $42,940,000 with the remaining $18,452,000 future funded for approved capital expenditures and tenant improvements/leasing commissions for to-be-leased space. No interest is due on funds until drawn. The loan is open for prepayment at any time subject to a 24-month minimum interest payment.
December 18, 2019
George Smith Partners successfully arranged $3,000,000 in a cash-out permanent refinance secured by the sandwich leasehold interest in a single-tenant leased office building in Irvine, California. The Subject Property is in the heart of Orange County’s business district and next to the Irvine Business Complex and John Wayne Airport. The neighborhood is in a mature stage with limited amount of vacant land available for new development. The Property consists of three multi-story buildings having 69,474 SF net rentable space.
The Subject Property is encumbered by a ground lease. The leasehold interest, ground lease, and tenant improvement lease all expire in five years, with no extension options. The non-investment grade tenant has a six year lease remaining and they are not required to provide business financials.
GSP identified a capital provider able to structure a five year fully amortizing loan. The Sponsor’s considerable real estate track record and financial strength further encouraged the Lender to provide a low interest rate. The recourse loan is fixed at 3.00% with a 5-year term and will be fully amortized in five years.
December 18, 2019
George Smith Partners placed an $11,895,000 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. The other assets are not 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. Our Capital Provider sized this request to 65% of appraised value and fixed the rate at 3.88% for 5 years. It was extremely important for our Sponsor to have permanent financing that carries a step-down pre-payment penalty from 5%.
October 30, 2019
George Smith Partners successfully arranged $1,500,000 of rate and term refinancing for a multi-tenant office building in Santa Monica, CA. The Property was constructed in 1975, and it has been recently renovated with 6,256 sf net rentable area. The Property is conveniently located near Santa Monica College, Downtown Santa Monica, and it is less than two miles away from Santa Monica State Beach. Santa Monica has been and still is one of the most highly sought-after office locations in the Los Angeles area by tenants and investors. The submarket has very significant supply constraints, though rental rates are lagging the metro average. The purpose of the refinance is to pay off the existing debt and take advantage of the low interest rate environment.
The Sponsor is self-managing the Property. They renovated the units recently and brought the rents up to market rate. The Building was 100% occupied by local and non-credit tenants at closing. All of the leases will roll within the first three years of the loan term.
GSP sourced a lender who is willing to offer a 7-year permanent loan term, without holding back Tenant Improvement and Leasing Commissions reserves. The loan is sized to 31%LTV, it has a fixed coupon of 3.46% with a 25-year amortization schedule.
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.
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.