Transaction Overview
George Smith Partners successfully replaced a hard money loan with institutional debt on an underperforming garden style office building in Southern California. The prior loan had ballooned although the Borrower had yet to complete his re-stabilization plan for the asset. While cash flow is available from current occupancy, all proceeds went to servicing the high-yield debt with no TI allowance to maintain the Sponsors’ lease-up momentum. The new bridge loan cleaned up all the partnership invoices and allows for the necessary cash flow after debt service for the asset to support itself on a go-forward basis. Terms are 6.50% fixed for three years, amortized over 25 years to 65% LTV.
Challenge: The Borrower had invested all available personal liquidity to carry the property and re-lease the asset from its’ 20% physical occupancy two years ago, to the 62% at funding. Most conventional debt lenders were concerned with the lack of remaining liquidity combined with the secondary market location. The debt coverage ratio at funding qualifies the asset for perm debt today, although the physical occupancy will not meet the standards of a perm-loan underwriter without additional leasing.
Solution: GSP identified a portfolio lender actively funding cash flowing assets in secondary and tertiary California markets. Several site visits with the Borrower confirmed demand at a very low cost basis. Two existing tenants were looking to expand into larger space upon completion of minor TI work. Ample cash flow to complete the reposition of the asset was proven once the mortgage constant was reduced by 40%.
