Don't Miss a Fact,
Sign Up for FINfacts!

FINfacts is a weekly newsletter highlighting recent financings and economic insights.

Subscribe Here

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

Related Financings

  • $56,500,000 Construction Financing for a Coastal Infill Mixed-Use Asset; Solana Beach, CA

    May 19, 2021

    Transaction Description:

    George Smith Partners arranged $56,500,000 in construction financing for the development of a mixed-use coastal infill project in Solana Beach, CA. The mixed-use development features 55,000 square feet of office space, 9,000 square feet of retail and 25 apartment units.

    Located just one block from the beach and the Cedros Avenue Design District, the two-story development focused on sustainability will be the largest mixed-use project along Highway 101 in the past three decades. The dearth of comparable projects, especially ones with large office floorplates, presented a unique opportunity.
    Amidst a time of market volatility and economic uncertainty, GSP was able to identify capital who not only understood the value of all three components and the subsequent demand but also the ability of the Sponsor to execute on the intended business plan.

    All Terms Confidential

  • $58,000,000 Life Co. & Preferred Equity Non-Recourse Construction Financing; Culver City Adjacent, CA

    April 28, 2021

    Transaction Description:

    George Smith Partners successfully closed $58,000,000 in non-recourse construction financing for a seven-story, mixed use development across from Sony Pictures Studios and adjacent to Culver City, CA. The Project features 139 apartment units over 1,969 SF of ground floor retail. The Sponsor received a density bonus thanks to TOC incentives, in exchange for allocating 14 affordable units.

    While this is the second U.S. project – the first was also financed by GSP – for a successful international developer, the pool of capital providers was significantly reduced due to the borrowing entity being headquartered in a foreign country. Presenting this deal during the height of the COVID-19 pandemic also presented significant challenges. GSP leveraged its structured financing expertise, lender relationships, strength of the Project and the Culver City market to negotiate the most desirable terms for the Sponsor.

    The financings are comprised of $42,000,000 in senior construction debt from a Life Co. lender and $16,000,000 in preferred equity and includes a substantial amount in recap funds to the Sponsor at closing. The term is five years, with interest only payments and no prepayment penalty upon Certificate of Occupancy. The senior note is LIBOR + 390 and the preferred equity investment’s interest will be fully accrued during the entire term, thereby reducing the amount of interest reserve and the Sponsor’s initial cash equity contribution.

    Rate: L + 390 (senior)
    Term: 5 Years
    Amortization: Interest Only
    Prepayment: None upon Certificate of Occupancy
    Guaranty: Non-Recourse; Completion Guarantee with Standard Carveouts to an Entity

  • $60,200,000 Ground-Up Construction Financing, 85% LTC, 6.65% Blended Coupon on a 307-Unit, Class-A Apartment Community; St. Louis City, MO

    February 17, 2021

    Transaction Description:

    George Smith Partners successfully placed $60,200,000 in high-leverage construction financing, which funded 85% of total project cost for the construction of a 307-unit mixed-use multifamily and retail project located in the trendy St. Louis City neighborhood of The Grove. GSP leveraged its lender relationships, capitalization structuring acumen, local market expertise, and strong project fundamentals to arrange the most accretive financing structure available in the market during the peak of the COVID-19 pandemic. The capitalization included a senior loan to 60% loan-to-cost and a preferred equity investment with last-dollar exposure to 85% of total project cost. The preferred equity investment is non-recourse and the senior loan required only a top-end 25% repayment guarantee. Additionally, the Lender and preferred equity investor gave credit for a lift in land value above the Borrower’s actual cost due to the Borrower having created substantial value through entitlements and development incentives.

    Rate: 6.65% (blended coupon)
    Term: Three-year initial term plus two, 12-month extension options
    Amortization: Interest only
    LTC: 85%
    Prepayment: 2%, 1%, open
    Guaranty: 25% repayment guarantee on senior loan only; does not apply to the non-recourse preferred equity investment
    Lender Fee: 0.82% blended

  • $14,050,000 Acquisition and Reposition Financing, 89% LTC (4.90% blended coupon) on a 79-Unit, Mixed-Use Apartment and Retail Project; St. Louis City, Missouri

    December 2, 2020

    Transaction Description:

    George Smith Partners successfully placed $14,050,000 in construction financing, which funded 89% of total project cost, for the acquisition and reposition of a 79-unit, mixed-use property in a desirable and historic St. Louis City neighborhood. GSP was engaged by the Borrower when its original lender, a national REIT, was forced to re-trade the Borrower on loan terms due to the COVID-19 pandemic. Upon being engaged, GSP was able to source the replacement debt and equity in time to close the transaction without a material delay. The financing structure included a senior loan to 81% loan-to-cost and a preferred equity investment with last-dollar exposure to 89% of total project cost with a 4.90% blended cost of capital. GSP leveraged its expertise of the St. Louis market, long-standing lender relationships, and capital markets creativity to achieve the Borrower’s goals of minimizing cash equity invested into the Project so that it can keep a substantial cash reserve to pursue additional projects which are expected to present themselves during the COVID-19 pandemic.

    Rate: 4.90%
    Term: 36-months with one, 12-month extension option
    Amortization: 24-months interest only, 25-year amortization thereafter
    LTC: 89%
    Prepayment: None
    Guaranty: Full repayment guarantee (on senior loan only; does not apply to the non-recourse preferred equity investment)
    Lender Fee: 50bps

  • $19,100,000 Construction Financing to 92.5% LTC on a 111-Unit, Class-A Apartment Community; St. Louis City, Missouri

    April 8, 2020

    Transaction Description:

    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.

    Rate: Confidential
    Term: Twenty-four-month initial term with one, 12-month extension option
    Amortization: Interest only
    LTC: 92.5%
    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

    Transaction Description:

    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).

    Challenges:

    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.

    Solutions:

    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.

    All Terms Confidential