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5,000,000 Western States Self-Storage Cash-Out Refinance

Rate: 4.35% Fixed
Term: 10 years
Amortization: 25 years
Prepayment: SWAP Breakage
Lender Fee: Par

Transaction Description: George Smith Partners placed the $5,000,000 refinance of a 1079 unit self-storage facility located in the Pacific Southwest. George Smith Partners was engaged as the in-place debt opened to prepayment and our Sponsors sought to reduce their current 6.75% coupon while recapitalizing their partnership. Sized to 48% of appraised value, this financing returned over $500,000 of equity to the Sponsor. Funded as a Prime plus execution, the loan was synthetically fixed with a SWAP and locked at 4.35% for ten years, amortizing over 25 years. As a Prime based loan, there was no prepayment penalty although there is the potential for a SWAP breakage fee.

Challenges: The self-storage property is in a sub-market that has been slow to recover from the economic downturn, historically operating below break-even coverage. To achieve requested proceeds and cover the existing debt, capital providers needed to look past historic cash flow and focus on trailing 3 month collections.

Solutions: George Smith Partners promoted the significant operational turnaround since the instillation of a new management company. George Smith Partners then identified a portfolio lender that vetted and underwrote the new operator, allowing them to model the recent cash flow to secure the requested proceeds. A higher than expected appraised value and Sponsors’ financial strength further solidified the return of equity.

Related Financings

  • $16,400,000 Non-Recourse Mixed Use Specialty Refinance

    August 23, 2017

    Transaction Description:
    George Smith Partners placed the non-recourse $16,400,000 rate and term refinance of a Southern California mixed use office and specialty retail center. Proceeds were used to retire the existing maturing loan and cover refinance costs. Actual in-place cash flow exceeded a 1.60 debt coverage ratio. Loan documents were drafted to allow for the transfer of ownership interests for estate planning purposes. Fixed for five years via a synthetic SWAP, the on-book loan allows for two – 1 year options; amortized over 30 years.

    Anchored by a fitness center, store sales and membership information was not available. Approximately 30% of the net rentable office space was vacant and several tenants were also month-to-month.

    Sized to 55% of value, our capital provider gained comfort of not having anchor store sales with physical inspections showing a strong client presence at this location. Our Sponsor demonstrated daily hands-on management addressing occupancy and maintaining good relations with existing office tenants. Three-quarters of the gross revenue is generated by the retail operations.

    Rate: 4.32% Fixed for Five Years
    Term: Five Years plus Two 1 Year Options
    Amortization: 30 Years
    LTV: 55%
    DCR: 1.60
    Guarantee: Non-Recourse
    Lender Fee: Par

  • $2,475,000 Non-Recourse Mini-Permanent Acquisition Financing for a 693-Unit Self Storage Facility in a Major Metro in the Southwest

    July 19, 2017

    George Smith Partners arranged a $2,475,000 non-recourse loan for the acquisition of a 693-unit Self Storage facility in a major metropolitan market in the Southwest.  Although the facility is well located near a major university and a central business district, many lenders were uncomfortable with the facility having below market occupancy, limited frontage to the road, deferred maintenance, and being niche property type.  The institutional sponsor also required fixed rate execution to hedge against rising interest rates, a non-recourse structure, and a flexible prepayment structure.  GSP sourced a lender familiar with the strength of the location and sponsorship as well as believed in the property’s upside.  Sized to 55% of purchase, the non-recourse loan carries a 4.71% fixed rate for a five-year term and amortizes over 25 years.  There is a one-point prepayment penalty for the first three years of the term with no prepayment penalty thereafter.

    Rate: 4.71%
    Term: 5 Years
    Amortization: 25 Years
    Loan to Value: 55%
    Prepay: 1-1-1-0-0
    DCR: 1.3x
    Guaranty: Non-Recourse

  • $7,500,000 Cash-Out Refinance Senior and Stand-By Line of Credit

    April 19, 2017

    Transaction Description
    George Smith Partners placed a $7,500,000 refinance of two special use, unanchored multi-tenant retail properties located in the City of Industry. A sizable return on equity (142% of total capitalization) was permitted due to our Sponsors’ 20 year ownership and management history of the asset. This transaction was structured as senior debt funded at $4,300,000 and a $3,200,000 crossed-collateralized stand-by line of credit. Both vehicles were funded by the same capital source. Due to the special-use tenant mix, the senior debt was sized to 60% LTV and priced at Prime plus 1% fixed for five years and amortized over 25 years, while the credit line will float at Prime plus 1.5% for two years. Interest is only paid on funds drawn. There is no prepayment penalty for either tranche.

    Special use tenancy at both properties is subject to a CC&R review by the local municipality at the end of 2017. One tenant who occupies 20% of the net rentable square feet went dark and vacated the property during the due diligence process.

    GSP identified a regional lender that understood the market and was eager to build a relationship with our Sponsor, who has impressive real estate holdings, a long track record of execution and significant financial strength. By demonstrating that market rents and occupancy levels still allowed for significant debt service coverage, GSP was able to assist the lender in gaining comfort with the properties’ specialty-use and uncertain occupancy future.

    Rate: Senior Loan – Prime + 1%; Line of Credit – Prime + 1.5%
    Term: Senior Loan – 5 Years; Line of Credit – 2 Years + Extensions
    Amortization: Senior Loan – 25 Years; Line of Credit – Interest Only
    LTV: 60%
    DCR: Senior Loan – 1.25x; Line of Credit – 1.5x
    Lender Fee: 0.75%

  • $10,141,000 Equipment Cash-Out Refinance for an Aerospace Machining and Assembly Company

    January 18, 2017

    Transaction Description
    George Smith Partners closed a $10,141,000 equipment financing loan with cash-out for a repeat client. After successfully placing two non-recourse loans on two industrial buildings for the client, GSP was engaged to help consolidate several higher interest loans on their equipment and get cash-out for re-investment. Prior attempts by the borrower to refinance the equipment with cash out on their own were not successful.

    (1) Lenders are dissuaded when it comes to cash-out, especially if the request is significant relative to the collateral value. (2) Under SBA 504c, equipment is required to have a useful life greater than 10 years to qualify. The appraisal indicated approximately 35% of the equipment had a useful life of 8 years. This resulted in almost $4.6M lost in value and would have required the borrower to bring in cash to close versus getting cash-out.

    (1) GSP recognized the “owner-user” attributes of the borrower and how the equipment was used. They identified that the transaction would be eligible for the SBA 504c program which would allow for cash out and carry a lower interest rate. Additionally, GSP worked with an aggressive bank that was comfortable underwriting a loan secured by equipment and not the real estate (2) GSP highlighted to the lender that an experienced in-house maintenance crew was actively servicing the equipment and demonstrated that useful life would be well over 10 which increased the value of the equipment by $4,600,000 and allowed for cash-out. The bank loan and SBA loan carries a blended rate of 4.72%, saving the borrower approximately $1,000,000 in interest costs annually.

    Rate: 4.72% Blended
    Term: 1st- 10 Years; 2nd – 10 Years
    Amortization: 10 Years
    Loan to Orderly Liquidation Value: 74%
    Loan to Fair Market Value (FMV): 62%

  • Special Purpose/Mixed-Use North Carolina Refinance

    October 1, 2015

    Transaction Description: George Smith Partners placed the refinance of a mixed-use commercial property in Durham, North Carolina. The asset consists of residential rental units and a day care/pre-school. Our Sponsor resides in one of the units and operates the pre-school. Excess proceeds were used to buyout an existing partner. Sized to 60% of appraised value, the recourse loan is fixed for 5 years at 6.07% prior to floating for the remainder of the 20 year term. Prepayment penalty is 5% flat for the initial fixed rate term and open thereafter.

    Challenge: There were multiple State and Federal Tax Liens filed against the Borrower in addition to other credit issues that reduced the Sponsor’s credit score. The pre-school’s revenues had been declining since 2012, making it difficult for underwriters to accept this business model.

    Solution: State and Federal Tax Liens were explained and documented by the Borrower’s Tax Attorney and IRS to gain a better understanding of the Liens. A lien pay-off was structured and additional proceeds were allocated to allow the buyout of the existing partner. Although business revenues had been trending down, there was an increase in enrollment at the end of 2014. This coupled with our Borrower’s plan to cut operating costs support a significantly improved 2015 EBITDA.

    Rate: 6.07%
    Term: 20 Years
    Amort: 20 Years
    LTV: 60%
    Prepayment: 5,5,5,5,5, Open

  • $31,500,000 Refinance for a Private Non-Profit University

    September 14, 2015

    Transaction Description: George Smith Partners arranged $31,500,000 in permanent financing for a private, non-profit University. The new debt refinanced an existing loan that was originally used to purchase and improve the campus. A regional bank that has financed numerous non-profit educational facilities was quickly identified. Their experience added certainty of execution given the fluctuations in income as a large percentage of their revenue comes from gifts and grants, not just tuition. The tuition cash flow alone did not support the loan request. This capital provider is also able to provide construction financing for future development if the school chooses to add additional improvements to their campus. A 15 year term with a rate reset after the 10th year for the remaining 5 year term provides for flexibility while postponing balloon risk. Fixed for 10 years at 4.0% before the rate reset in year 11, the loan amortizes over 30 years and is full-recourse to the operating University. There is no pre-payment penalty during the term of the loan.

    Rate: 4.0% Fixed for 10 Years; Then T+2.0%
    Term: 15 Years
    Amort: 30 Years
    Prepayment: None