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
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.
Related Financings
- No related financings.
