Transaction Overview
Not a typo – long-term leaseholds do expire. GSP successfully placed the cash-out refinance of the fee interest as the ground-lease expired and leased retail improvements reverted to the fee owner. Prior to the transfer, the borrower approached the two anchor tenants and had them execute a five year extension as all tenant leases were co-terminus with the ground-lease. The lenders’ collateral consists of the fee interest and all improvements.
Challenge: The borrower did not own the leasehold interest until close of escrow, and therefore did not have access to any historical cash flow, retail sales or a verifiable rent roll. The two anchor lease terms are for five years while all other leases are month-to-month, presenting an event risk five years out. Former recorded leases from non-existent tenants posed title impediments as the borrower had no relationship with those tenants.
Solution: GSP drew on their extensive capital relationships to identify a Southern California portfolio lender willing to mitigate the reporting shortcomings with the strong location and strength of sponsorship. This lender underwrote the upside potential while becoming comfortable with the low cost of occupancy for the short termed tenants. GSP worked closely with title in tracking down and securing quit claims from prior occupants.
