Transaction Overview
George Smith Partners successfully secured $1,325,000 in financing for the purchase of a 9,500 square foot industrial/warehouse building in Los Angeles. The proceeds were structured as $1,125,000 for a first trust deed at a rate of 7.9% and $200,000 for a second trust deed at a rate of 12.99%. The combined proceeds represented 70% of the acquisition price. A number of challenges were encountered in securing financing for the property. First, our Sponsor had to secure financing within 1 week. Second, the subject property was leased to a tenant who was occupying the entire 9,500 square foot property, even though the lease agreement stipulated only 5,000 square foot of space was available to them. While GSP was marketing the deal, legal proceedings were underway to compel the tenant to comply with his lease. Finally, there was lease-up risk since it was unclear when the buyer would be able to lease the remaining space to a new tenant. The selected lenders had an intercreditor agreement and were able to offer a quick close with minimal documentation. The lenders required only a property walkthrough in contrast to a full appraisal. GSP provided rent comps that supported the Sponsor’s business plan for the property, as well as market data that showed vacancy of less than 1% for industrial product in the market. As a result, our lenders were able to underwrite to the in-place income of the property, and were comfortable with the value regardless of the outcome of the pending litigation with the tenant.
