Transaction Overview
Transaction Description_:_ Bryan Shaffer successfully placed the debt of a retail/SRO property in the heart of Los Angeles. SROs are Single Family Occupants that lack bathrooms and full kitchens inside the unit. This mini-perm replaces the acquisition and rehabilitation loan GSP placed in September of 2011 at a lower cost of capital and provided a partial return of construction costs to the Borrower. The new capitalization allows the Sponsor to complete his lease-up and earn-out additional funds upon hitting occupancy hurtles. Executing a significant turn-around for a depressed area, this project demonstrates how an investment with the proper sponsorship can reshape an entire market. The floating rate loan is prime based with a 5.0% floor, sized to a 1.20 DCR on a 30 year amortization schedule.
Challenge:Very few capital providers understand the value and demand SRO properties. The relatively large loan size inhibited many who do understand the need for this product type. The subject property had just undergone rehab and occupancy levels were still climbing from vacant to the 70% physical at the time of funding, the asset was not stabilized by institutional standards at close. The building has a history of issues and carried a negative stigma with those who are familiar with this operation.
Solution:GSP canvased debt funds, larger local and international banks who understand that this product while unique to suburban America, is not unusual for much larger international cities. Although the Borrower had yet to complete the lease-up, the Lender became comfortable with their business plan of moving away from the more transient tenant to a longer-term leased model. In addition to smoothing out the cash flow, this model helps to dispel the blemish of the prior operator. Due to the Borrowers’ dramatic repositioning, the “before” and “after” rehab convinced the lender to fund prior to occupancy stabilization subject to an actual +1.20 debt coverage at close.
