$56,500,000 Creative Office Refinance

Transaction Description:  GSP secured the cash out refinance of a 157,000 square foot 100% leased creative office building in Southern California. An additional 13,000 square feet of office space is being added to the collateral and was under construction at the time of funding. The $56,500,000 loan returned substantial cash equity back to the Sponsor. Underwritten to a 7.57% debt yield and a 1.29 DCR, the non-recourse loan is fixed for 10 years with a 30 year amortization at 4.41%.

Challenge: To achieve the maximum cash out, the lender included income from a partially completed building on the property. Although pre-leased, the new tenant had a termination option if construction was delayed. Additionally, the lender utilized the proforma rental income for a major space which was under LOI to a higher paying tenant set to sign their lease post close. The lender also included two long term lease extensions from existing tenants even though the increased rent doesn’t start for 4-6 months. Cross-easements from unrelated properties also generated a parking deficiency.

Solution: GSP showed that the sponsor was a “best in class” operator. GSP demonstrated that some of the cash proceeds would be invested back into the surrounding area, ultimately increasing the value of the subject collateral. As a result of these rent inclusions for future rental streams, the final loan amount was $8.5 million more than the initial loan request. A $5,000,000 holdback was structured to cover remaining construction costs, TI/LC’s, three years of contractual rent abatements and the possibility that the new tenant doesn’t sign the proposed lease.