Rate: 30-Day LIBOR + 1.95%
Term: Three years plus two 12-month extensions
Amortization: Interest Only (initial term)
Prepayment: 0.5% months 1-6; open thereafter
Lender Fee: 0.5%
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.
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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.
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.