$3,120,000 for Purchase of 30,000 SF Office Property in the San Fernando Valley; Non-Recourse Financing at 60% LTV

Rate: 4.85% fixed for 5 years
Term: 5 years
Amortization: 25 years
Prepayment Penalty: 3,2,1,0 with 5% principal annual repayment allowed
LTV: 60%
DCR: 1.30x
Guaranty: Non-Recourse

Transaction Description:

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.


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