TRANSACTION OF THE WEEK
$12,875,000 For Portfolio of 4 Market/Drug Anchored Shopping Centers in Secondary Markets: This transaction was squeezed into the "CMBS Box" through intensive structuring and negotiating. This 70’s vintage retail portfolio is located in and around a Western States metropolitan area. The Portfolio: (1) 99,814 s.f., 98% occupied, 15 tenants (Osco Drug, MacFrugal’s), built 1975; (2) 98,250 s.f., 100% occupied, 14 tenants (Sears, HomeLife, Osco Drug), built 1972; (3) 25,234 s.f., 100% occupied, single tenant (Canned Foods, Inc: a discount grocery store), built 1976, (4) 58,308 s.f. (98% occupied), 4 tenants (Thrift City, grocery store), built 1975. The centers include a significant amount of short term leases. Challenges to the Financings: (1) Customized language was negotiated with the lender and master servicer regarding future approval/turnaround time of TI/leasing reserve escrow disbursements; (2) CMBS lender funded loans without estoppels or SNDA’s from two anchor tenants; (3) GSP negotiated with the previous lender, with loans on 7 properties, to effect a partial payoff on only these 4 properties. This allowed the borrower to sell one of the remaining properties after this loan closed; (4) GSP structured a plan which called for parcelization of the centers to allow non-stabilized portions to be unencumbered so they may be financed in the future; (5) Major storm knocked roof off two anchor tenant spaces 3 weeks before loan closing. Situation resolved via updated engineering reports and immediate repair holdbacks. Terms: (1) Rate: T+2.50% (borrower rate locked 30 days prior to closing at a 5.75% T); (2) LTV: 80%; (3) DCR: 1.25; (4) Term/Amort: 10/30; (5) Non-recourse; (6) Lender Fee: Par. (George Smith and Michael Schwartz)
$1,400,000 Preferred Equity Arranged for Acquisition of a Central Valley Shopping Center/7 days from Term Sheet to Funding: Borrower needed: (1) To gap an equity shortfall for the acquisition of 1960’s built shopping center, and (2) to close within 10 days of the initial contact with the mezzanine lender. The loan was structured as preferred equity with return priority over the common equity. The business plan calls for a complete rehab of the aging center. Prior to closing, the developer bought out the remaining lease term of a long-term tenant paying substantially under market rent. The developer will then replace that tenant with a 50,000 sq. ft. anchor tenant at market rents, which will attract new tenants to the side shops. Lender Challenge: Only 4 business days to underwrite the market, the borrower and the real estate. Lender Risk Mitigation: Due to lack of time to complete a thorough due diligence, the lender took an assignment of partnership interest in other collateral. The assignment will be released upon execution of the new anchor tenant lease. Additional risk mitigation includes a call option at the end of the term. Terms: (1) Equity Amount: $1,400,000; (2) Term: 2 years; (3) Pricing: Fixed 25% return with no participation, which met the borrowers needs because of timing and significant upside; (4) Fees: Par with no transaction costs. ,Summary: The deal brought together numerous elements of creativity and risk mitigation to fund a quick close, preserve the borrowers upside and fulfill the timeline of the purchase contract. (Gary E. Mozer, Peter Smyslowski)
HOT MONEY!
Portfolio Lender Funds Single Tenant and Owner/User Transactions Nationwide: Retail, industrial and office properties are eligible for financing. Program features an extremely responsive portfolio lender who locks rate at app (not just the spread). Typical rate is T + 2.50% for a 10 year term. Amort: Lease term +10. Credit Tenant: (1) Criteria for qualifying as credit tenant are all must be true): (a) $50,000,000 min annual gross revenue; (b) $25,000,000 net worth; (c) Company has shown a profit for the last 5 years; (2) Loan proceeds are determined by the lower of: (a) 1.15 DCR (based on 3% mgmt. fee, no reserves, no vacancy), or (b) 75% LTV; (3) Non-recourse. Owner User: (1) Owner must occupy at least 50% of building; (2) Criteria (all must be true): (a) $10,000,000 annual gross, (b) Loan amount not to exceed net worth; (2) Proceeds: Based on 1.10 DCR (using 3% mgmt./5% vacancy) or 75% LTV; (3) Recourse.
"Cautious Optimism on the Street" Positive news on both bond market & CMBS today. The week began ugly as the US issued new 5/10/30 year notes/bonds while traders were still reeling from July 30’s econ. reports. The 10 yr. reached 6.16% on Wednesday afternoon before rallying on the Fed’s "Beige" book and today’s non-inflationary PPI report. CMBS: Last week’s large IB pool had AAA’s rumored at T + 176 (actual figure was T + 168.5). A $1.4 billion standard conduit pool by two major national banks is rumored at press time to be pricing in the T + 145-155 range. If this pricing holds, it represents significant spread tightening and evidence of "branding", as bond buyers are differentiating between originators based upon underwriting. Stay tuned…
