GSP Increases Financing to $11,200,000 to Cover Renovation Cost Overruns in Five Days; Orange County, CA

Rate: 8.4%
Term: 1 Year and 1 Year extension
Amortization: Interest only
LTV: 80% Cost
Prepayment: None
Guaranty: Non-Recourse
Lender Fee: 1%

Transaction Description:

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.

Challenges:

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.

Solutions:

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.

Advisors

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