Transaction Overview
Shahin Yazdi successfully arranged the $22,000,000 non-recourse acquisition debt for the purchase of a newly constructed CVS and a non-credit grocery anchored retail center in South Central Los Angeles. The loan underwrote for 90% of the purchase price but appraised for 76% of value. Final lender loan approval was obtained within 45 days of application. Fixed at 4.187% for 10 years, the loan amortizes over 30 years after an initial two years of interest only.
Challenge: The ownership structure included two Tennant-In-Common (TIC) investors inclusive of a Non-Profit organization who would also serve as property manager post close. The non-profit lacks commercial real estate management experience. Mezzanine Debt and/or Pref Equity was not acceptable to the Sponsor in securing the highest capitalization possible. The at-close debt yield of 7.24% is below most lenders’ minimum thresholds. The City of Los Angeles has a Section 108 loan, although subordinated, is recorded on title. This encumbrance carries full foreclosure rights.
Solution: The capital provider agreed to underwrite a two-borrower TIC structure as part of their due diligence. They also agreed to have the Non-Profit maintain the management rights as long as our sponsor would oversee all their actions. Placed under contract for sale 10 years ago, the asset appreciated significantly over time. The lender agreed to give consideration for the appreciation and underwrote a 76% of value, not to exceed 90% of the acquisition price under a traditional debt structure without layering on mezz/pref equity. Near term contractual fixed rent increases allowed for a lower debt yield to be underwritten. A Letter of Credit was collateralized by the lender to off-set the recorded city Section 108 loan until it burns off in the next seven years. The Letter of Credit will step-down as the Section 108 loan amortizes.
