Term: 1 Year and 1 Year extension
Amortization: Interest only
LTV: 80% Cost
Lender Fee: 1%
After securing an initial loan of $9,700,000 for a well-located Orange County, California retail center, George Smith Partners arranged an additional $1,500,000 in construction/renovation mezzanine capital. This brought the total debt capitalization to $11,200,000. The Sponsor has been renovating the center over the last year but went over-budget due to increasing construction costs.
The Sponsor had used a debt-fund loan to renovate the aging shopping center and make it more vibrant. However, due to rising construction costs, the Sponsor went over budget with the property renovations. Most lenders are not comfortable financing a project that already has expensive debt and is also experiencing cost overruns.
GSP ultimately demonstrated the lender’s last dollar basis was very conservative compared to the as-stabilized value of the property following renovations. GSP utilized one of our relationship lenders to provide the emergency capital and was able to close the transaction within just five days. This allowed the Sponsor to complete construction and focus on leasing the center.
$19,100,000 Construction Financing to 92.5% LTC on a 111-Unit, Class-A Apartment Community; St. Louis City, Missouri
April 8, 2020
George Smith Partners successfully placed $19,100,000 in construction financing, which funded 92.5% of the total project cost for the construction of a 111-unit second phase of a larger mixed-use multifamily and retail project located in the trendy St. Louis City neighborhood of The Grove. The financing structure included a senior loan to 85% LTC and a preferred equity investment with last-dollar exposure to 92.5% of total project cost. The preferred equity investment is non-recourse and the senior loan provides for only a 50% repayment guarantee that burns down to 25% upon certificate of occupancy. Additionally, the Lender and preferred equity investor gave credit for a lift in land value above the Borrower’s actual cost due to the Sponsor having owned the land since 2016 and it being the second phase of a larger project. GSP leveraged its expertise of the St. Louis market, long-standing lender relationships, and capital markets creativity to achieve the Sponsors goals of minimizing cash equity invested into the project due to how much value is being created in this phase of the project.
Term: Twenty-four-month initial term with one, 12-month extension option
Amortization: Interest only
Prepayment: Nine-months minimum interest
Guaranty: 50% repayment guarantee that burns down to 25% repayment guarantee upon certificate of occupancy (on senior loan only; does not apply to the non-recourse preferred equity investment)
$51,750,000 Senior Construction Financing & $16,200,000 Mezzanine Debt Placement for the Development of a Grocery Anchored Shopping Center; Kona, Hawaii
January 15, 2020
George Smith Partners advised on the placement of $51,750,000 and $16,200,000 Senior Debt and Mezzanine debt respectively for the ground-up development of an institutional quality 204,275 SF outdoor shopping center that will be located along Kuakini Highway, one of the island’s most trafficked thoroughfares. The Property, which sits on a rare fee-simple 20-acre site, will provide patrons with easy access to both Henry Street and Palani Road and over 700 parking spaces (representing a parking ratio of 4:1,000 SF).
Although the Sponsors who partnered with a major life company, had extensive prior career experience in the field of commercial real estate development, the Project represented the Sponsor’s largest development to date. The development of the Project had already commenced adding another layer of complexity to the transaction.
GSP focused on the lack of new retail development on Kona and specifically the anchor tenant’s commitment to relocate their store from an adjacent shopping center (less than 0.50 miles). In addition, GSP was able to convey to capital sources the immense value of the fee simple ownership of the site – a rare occurrence in Hawaii where most land is leased from the State. Ultimately GSP was able to identify two lenders who not only understood the value of the fee simple ownership of the site but also understood the lack of new retail space and the subsequent demand.
$13,944,000 ($1,180/SF) Non-Recourse Construction Financing for the Redevelopment of a Former Single-Tenant Office Property in Santa Monica, CA
June 12, 2019
George Smith Partners placed $13,944,000 in non-recourse construction debt for the conversion of a former single-tenant office property into an 11,800 square foot, luxury, multi-tenant retail property in a prime submarket of Santa Monica, California. GSP diligently worked to source a lender comfortable with funding a loan at a high basis of $1,180/SF for a “first-mover” redevelopment that was 64% pre-leased (on an economic basis) at record-setting rents to a mix of local and regional food and fitness users. Further complicating the loan request was the need to allocate separate components of the “bad boy” non-recourse carve-outs among two unrelated guarantor entities. Approximately 55% of the loan proceeds were future funded with no interest paid on unfunded loan proceeds until drawn.
Rate: One-Month LIBOR + 4.25% (6.75%) at closing burning down to One-Month LIBOR + 3.75% (6.25%) upon stabilization
Term: Three-year initial term plus two one-year extension options
Amortization: Interest only
Debt Yield: 8.5% stable debt yield
LTV: 70% as-complete value, 60% as-stable value
Prepayment: Open prepayment with 24-month spread maintenance
Lender Fee: 1%
December 5, 2018
George Smith Partners secured $8,700,000 of non-recourse, bridge acquisition financing for a 45,000 square foot retail center located in Richardson, TX. The Center, which was built in 1985, has a diverse mix of regional tenants and sits on the corner of two of the main thoroughfares in the area.
The Sponsor purchased the Property with the intent to add value through two approaches: (1) increasing rents for tenants that are rolling and paying below-market rates, and (2) constructing an additional 12,000 square feet on undeveloped land within the parcel. There were complications with parcelizing the existing building and the land, which meant that a single lender needed to fund the entire project. The large renovation and construction budget also resulted in only 41% of the total loan being funded at closing.
George Smith Partners identified a lender that could structure the financing to have two holdback reserves, one for the CapEx and TI/LC’s for the existing space and the other dedicated to funding the construction of the new building. The separate reserves allow the Sponsor to pursue both value-add opportunities simultaneously, which drastically reduces the project timeline and maximizes the Sponsor’s IRR. Our capital source was able to get comfortable with the construction component by requiring 75% of the space to be pre-leased prior to funding.
Retail Construction Loans: $43,000,000 104% LTC Non-Recourse Construction Financing for Two Large Retail Buildings in the Pacific Northwest
February 21, 2018
George Smith Partners successfully arranged $43,000,000 in non-recourse construction financing for two large single tenant retail buildings in the Pacific Northwest. The two buildings are part of a power center and will each house a national tenant with strong credit and a long-term lease. The blended cost of capital for the two non-recourse loans was fixed at 3.88%, and comprised over 100% LTC. This allowed leverage on the entire shopping center to reach approximately 80% LTC. The term of the loans are 25 and 30 years with 27.4 and 33.1 year amortizations respectively.
This being a challenging market for retail construction financing, traditional lenders could not reach the necessary leverage to finance the high construction costs of Retail Phase 1. Construction costs in Retail Phase 1 were disproportionately high as the onsite and offsite infrastructure work were built out for all future phases of a greater mixed-use development. The two large national credit tenants took up the majority of Retail Phase 1’s GLA. As major anchors of the center, these two tenants will be paying substantially lower rents than the inline retailers thus dragging the NOI of the property down causing further issues with the project’s yield.
Traditional lenders were constrained by Retail Phase 1’s high construction costs and low yields. George Smith Partners realized the best structure for this project was to bifurcate the center and finance the two large national credit tenant buildings separately from the inline space. GSP was able to identify non-traditional bond investors to make highly leveraged, inexpensive, non-recourse construction loans on the two large national credit tenant buildings. By separating the two larger buildings with lower rents from the inline space of Retail Phase 1, a traditional lender could then aggressively lend on the inline space of Retail Phase 1 because of the higher yields from the inline space. This is a result of a smaller concentration of GLA and substantially higher rents.
Construction Loans Temecula: $3,700,000 3-Story Mixed-Use Retail & Office Construction Financing to 67% of Cost
February 7, 2018
George Smith Partners arranged $3,700,000 in construction financing to develop 15,860 square feet of retail and office in Old Town Temecula, California. The developer plans to lease the ground and second floor with retail tenants and reserve the 3rd floor for office tenants. The challenges of the financing included the use of EB-5 equity in a spec development within a tertiary market. Our Sponsor desired financing without pre-leasing requirements to take advantage of the demand for this dynamic location during construction. Significant market interest from prospective tenants proved the thesis to the capital provider on a speculative basis.
Term: 18-month term with Two 6-month extensions
LTC: 67% LTC
Prepayment: 12-month minimum interest
- Advisors: Scott Meredith