Construction Loans California | $3,820,000 Single-Tenant Construction Financing at LIBOR plus 5.00%; 95% LTC

Rate: 1 month LIBOR + 500
Term: 15 Months + three 3 month extensions
Amortization: Interest Only
Loan to Cost: 88% LTC
Lender Fee: 1.25%
Prepayment Penalty: None
Guarantee: Recourse

Transaction Description:
George Smith Partners arranged a $3,820,000, 95% LTC construction of an 11,500 square foot NNN DaVita Dialysis center in a tertiary market of California. The Borrower entity was a joint venture between a developer and the land owner.

Challenges:
The Property is located in a tertiary market and also in a predominately residential neighborhood. The Sponsor was unable to contribute cash equity to the Project. Many lenders require 15% of the as-complete value to be in the form of cash equity. Lastly, while the tenant is somewhat well known in the capital markets, the Property is rated as sub-investment grade.

Solution:
George Smith Partners identified a lender who recognized the strength of the tenant and the lease terms relative to the market. The Lender accepted the as-is value of the land which, after the entitlements were achieved, was significantly more than the limited partner’s cost. The Lender proceeded with the loan without any Sponsor cash equity in the deal, reimbursed the Developer for out of pocket costs to date and gave them additional proceeds as a result of excess value in the land. Because the Lender allowed the land to be contributed at as-is value, the loan amount resulted in a loan to cost ratio of 88%. Given the original cost of the land by the Limited Partner, the actual loan-to-cost ratio was closer to 95%.

Advisors

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