Don't Miss a Fact,
Sign Up for FINfacts!

FINfacts is a weekly newsletter highlighting recent financings and economic insights.

Subscribe Here

$25,000,000 Refinance of Mixed-Use Property, 7.0% Stabilized Debt Yield, 10 Years Interest-Only; Santa Clarita, CA

Rate: 3.80% Fixed
Term: 10 Years
Interest-Only: 10 Years
LTV: 65%
Debt Yield: 7.0%
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners secured $25,000,000 in proceeds for the perm refinance of a 47-unit mixed use property in the Santa Clarita Valley, CA. The Lender provided proceeds of 65% of appraised value and underwrote to a 7.0% stabilized debt yield. The new first trust deed will refinance a high-interest bridge loan into a 10 year, 3.80% fixed, full term interest-only loan.

Several challenges were encountered when discussing the transaction with capital providers. The mixed-use property derives over 30% of its income from retail tenants which reduced the number of potential capital sources. The Property received Certificate of Occupancy during the COVID-19 pandemic in 2020. The multifamily units leased up quickly, but the retail units took longer as retail tenants navigated delays in the supply chain and permitting. Although the Sponsor was able to sign leases for all the retail spaces, they required extensive buildouts that took longer than anticipated to complete. Finally, most lenders required a stabilized debt yield of 7.5% – 8.0%, which would not provide sufficient proceeds to refinance the existing loan.

GSP was able to source a lender that was able to close the loan on its balance sheet, with the intent of securitizing it in 6 months. The balance sheet execution allowed the Lender flexibility to close the loan while the retail buildouts were still underway. The Lender was also able to underwrite to 7.0% debt yield, which resulted in higher proceeds than the rest of the market.

Advisors

Related Financings

  • $61,392,000 Refinance of a 207-Acre, Two Million Square Foot Pharmaceutical Campus in Tri-State Area

    April 15, 2020

    Transaction Description:

    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.

    Term: Three years plus two 12-month extensions
    Amortization: Interest Only during Initial Term
    Max Loan to Stable Value: 60%
    Prepayment: 24 months minimum interest
    Lender Fee: 1%

  • $15,000,000 Recapitalization Financing with $5,000,000 Cash-Out; San Francisco, CA

    April 24, 2019

    Transaction Description:
    In 2015 GSP financed a mixed-use retail/SRO-Hotel project in the “SoMa” (South of Market area) of San Francisco for $10,000,000. The Sponsor has continued to improve the Property and create additional value. Over the last several years the Property has doubled in value. The Sponsor was looking to recapitalize the original loan and take out $5,000,000 of cash equity.

    Challenges:
    The Sponsor did not want to pay prepayment penalties or incur a large refinance expense. The existing Lender did not have a program to allow for recapitalization or additional funding of their current loan.

    Solution:
    GSP underwrote and proposed a recapitalization program that would allow the Lender, with only a 25 bps increase, to provide a new $15,000,000 loan that provided the Borrower with $5,000,0000 cash-out. This allowed the Borrower to get the proceeds needed without refinancing expenses or prepayment penalties.

    Rate: 5.5% for years 1-10 and 5.85% for years 11-15
    Term: 15 Years
    Amortization: 30 Years
    Guaranty: Non-Recourse
    Prepayment: 5,4,3,2,1

  • $45,000,000 Non-Recourse Cash-Out Refinance of Studio/Office Mixed-Use Property in Hollywood, CA

    November 7, 2018

    Transaction Description:

    George Smith Partners secured a $45,000,000 non-recourse cash-out loan for the refinance of an office and production studio property located in the heart of Hollywood, California. The Sponsor purchased the Property all-cash in late 2017, with the knowledge that the in-place tenant had an early 2018 lease maturity and would not be renewing. Shortly after purchasing the asset with no tenant in tow, the Sponsor signed a long term lease with a high profile media technology company for the entire property.

    Challenges:

    Despite a long term lease with a prominent credit tenant, the transaction posted numerous challenges. Transaction requirements included: a lender comfortable with the asset’s specialty use; a non-recourse execution; a structure with no prepayment penalty allowing for maximum flexibility in the event of a sale or refinance; no impounds, escrows or lockboxes; and $45,000,000 in proceeds at a sub 5% rate.

    Solutions:

    In addition to emphasizing the iconic nature of the asset and its trophy location, GSP demonstrated the significant value the Sponsor had unlocked by signing an accretive lease with a long term, credit tenant and the Sponsor’s significant cash investment remaining in the Property. GSP also provided sales and rent comps supporting the basis in the asset and the rental rate in the lease. These items ultimately allowed the Lender to get comfortable with the transaction.

    The $45,000,000 non-recourse loan carries a 7-year term and floats at an attractive rate of Prime minus 25 bps (4.75% today). The loan requires no impounds, escrows or lockboxes and is freely prepayable at any time with no penalty or exit fee.

    Rate: Floating at Prime minus 25bps (4.75% today)
    Term: 7 Years
    Amortization: 25 Years
    Guarantee: Non-Recourse
    LTV: 55%
    Prepayment Penalty: None

  • Commercial Real Estate $2,925,000 Cash-Out Refinance for a Mixed Use Property in Palm Desert at 87% Loan to Cost

    May 30, 2018

    George Smith Partners arranged a $2,925,000 cash-out refinance loan for a 20,300 square foot mixed-use office over retail property in Palm Desert, California. The deal presented numerous challenges. First, the sponsor only owned the property for three months. Second, a lease was not available for the anchor restaurant space comprising two thirds of the property’s square footage. Third, the sponsor required extremely high leverage and conventional bank interest rates. Finally, the Sponsor needed to close the refinance transaction in 30 days due to a pending acquisition.

    To overcome the challenges George Smith Partners sourced a bank lender with which it had a long history of closing aggressive conventional financing with low interest rates. The property’s attractive location in Palm Desert, between the well-known retail thorofare of El Paseo and Highway 111, was emphasized as well as the Sponsor’s successful track record of purchasing notes on distressed properties, foreclosing on those properties and repositioning them.

    Sized to an aggressive 87% of purchase price, the loan included a 6-month interest reserve but did not require a holdback for TIs and LCs. The three year mini permanent loan is interest only for the first 12 months followed by 25 year amortization for the remaining two years. The loan floats at Prime plus 0.5% (5.25% today) with no prepayment penalty, and the lender fee was a minimal 0.5%. The loan closed in exactly 30 calendar days from application, which is an extremely fast closing timeframe for a conventional bank.

    Rate: Prime + 0.5%
    Term: 3 Years
    Amortization: 12 Months Interest Only; 25 Year Amortization Thereafter
    LTC / LTV: 87% / 65%
    Recourse: Full Recourse
    Prepayment Penalty: None
    Lender Fee: 0.5%

  • $5,750,000 90% LTC Acquisition Bridge Financing for Mixed-Use Development in Burbank, CA

    April 25, 2018

    Transaction Description:
    George Smith Partners arranged $5,750,000 in bridge financing for the acquisition of a retail building and the refinance of five contiguous office and retail buildings. Together these buildings form half a city block in Burbank, CA. The loan not only allowed for the consolidation of properties, but also provided predevelopment and entitlement capital for the future redevelopment of the city block into a large mixed-use development. Because of the future plans, the Sponsor was charging below market rents and a low cash-flow to value. The 10 year 90%/70% LTC/LTV loan has a fixed interest rate of 4.25% for the first 36 months of the term. Subsequently, the loan transitions to a 1-year ARM set at 2.75% over the 3-year treasury benchmark through maturation. The recourse loan has no prepayment penalty.

    Challenges:
    The Sponsor required the highest proceeds possible in order to complete the acquisition of the retail building and have enough capital for predevelopment and entitlement expenses for the future mixed-use development. However, the current in-place cash-flow on the five contiguous office and retail buildings severely limited the proceeds most lenders could become comfortable with providing. Additionally, with the impending redevelopment, the Sponsor wanted a loan with no prepayment penalty. Finally, the Sponsor had a tight window to close on the acquisition of the retail building.

    Solution:
    George Smith Partners understood based on the in-place cash flow of the five contiguous office and retail buildings, most lenders could not get to the desired proceeds required by the borrower. GSP ultimately utilized its relationships to identify an unconventional lender who used the actual rate rather than an underwriting rate when working through their internal underwriting constraints. As a result, this lender became comfortable with the proceeds number required by the Sponsor. GSP was able to structure the loan to have no prepayment penalty and close the loan timely for the impending acquisition.

    Rate: Fixed at 4.25% for 36 months; converting to an ARM for next 7 years at 2.75% over the 3-year treasury
    Term: 10 years
    Amortization: 30 Years
    Interest Only: 3 years
    Prepayment Penalty: 2,1
    LTC/LTV: 90% LTC/ 70% LTV
    Origination Fee: Par
    Guarantee: Recourse

  • $12,700,000 Cash-Out Mixed Use Refinance at 3.50% Fixed for Five Years w/ Three Years IO

    November 29, 2017

    Transaction Description:
    George Smith Partners secured $12,700,000 for the cash out refinance of a stabilized 60-unit historic mixed use property located in Downtown Los Angeles. Fixed for five years at 3.50%, the loan floats at 6 month LIBOR + 2.50% for the remaining 10-year term. There are three years of interest only payments and a 3,2,1 step down prepayment penalty. From the time due diligence was commenced, closing occurred in 40 days with no change to the original terms of the application.

    Challenges:
    Upon purchasing the property a decade ago, our Sponsors established a bifurcated organizational structure that allowed them to take advantage of a historical tax credit program. Although that benefit was exhausted, the complicated structure remained in place. The subject qualified for an ongoing property tax benefit under the Mills Act but required annual renewal. Most Capital Providers assumed a default rate position using Proposition 13 metrics that stressed the actual net cash flow. The large amount of multifamily units currently under construction in Downtown Los Angeles was also a concern for all underwriters.

    Solution:
    GSP identified a capital source that was comfortable with the numerous complexities and layers of the ownership structure. NOI was stressed with higher than actual property taxes although our Capital Provider agreed to underwrite down to a 1.15 DCR to allow for additional loan proceeds on their stressed cash flow. Presenting the property as workforce housing and not as the more expensive luxury housing currently coming on-line and under development, offers a competitive advantage over the newer product with higher finishes. The subject’s lower price point allows the property to operate in a separate, less competitive class than newer, more expensive construction.

    Rate: 3.50% Fixed for 5 years; 6 Month LIBOR + 2.50% thereafter
    Term: 15 years
    Amortization: 3 years IO; 30 Years thereafter
    Prepayment Penalty: 3,2,1
    LTV: 65%
    DCR: 1.15
    Origination Fees: Par