Acquisition Financing for Specialty Use Production Space at 66% LTV in Los Angeles, CA

Rate: Prime + 0.25%
Term: 5 years
Amortization: 1 year interest only, then 25 years
Prepayment Penalty: None
LTV: 66%
DCR: None for the first year, then 1.25x

Transaction Description:

George Smith Partners secured a 66% LTV acquisition loan for a vacant theatre space in Los Angeles. The loan provides 66% of the purchase price at a floating rate of Prime + 0.25%. The Sponsor plans to convert the theatre to a production studio/event space.

Several challenges were encountered while discussing the transaction with lenders. Many lenders were not willing to make a loan on a specialty use property. The Property had limited operating history as a theatre so detailed historical financial statements were not available. Furthermore, our Sponsor’s plan is to convert the Property to a new use.

These risks were mitigated when the Sponsor signed a master lease with a well-established, financially strong production company. Although the tenant will not move in for several months post-closing, the selected Lender was able to structure upfront reserves for capital expenditures and interest payments. The Lender waived the debt coverage ratio test for the first year after which the Property will cover at a 1.25x DCR.

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