| Transactions of the Week |  | |  | | Transaction Description: | | $2,200,000 Cash-Out Refinance of a Multi-Tenant Retail Building in Southern California Shahin Yazdi successfully placed the 70% LTV cash-out refinance for a 7-unit retail building in Southern California. The loan is fixed for 5 Years at 5.375%. |
Challenge: The property is held in a Trust where only half of the ownership entity members were willing to sign for the repayment guarantee – most lenders require a 51% participation or better. All the leases rolled within the first four years of the loan term. The 3rd party engineer uncovered a significant amount of deferred maintenance and roof damage during the due diligence process. |
Solution: Mr. Yazdi displayed the financial strength and asset control of the guaranteeing owners to the lender, allowing them to make an exception to their 50+% recourse policy. One major tenant facing a potential lease roll occupies 25% of the gross rentable space had just invested over $100,000 in tenant upgrades. It was unlikely that they would make that significant of a capital improvement and then vacate. Regardless, the property will have benefited from their improvements should they choose to leave upon lease expiration, making the space more attractive to a new potential tenant at a higher rent. One of the remaining tenants is paying below market rent and had been in occupancy for over 15 years. The lender accepted a small TI/LC reserve account for the remaining major tenant until their extension option renews later this year. The lender accepted a reserve account for deferred maintenance costs until the borrower completed the required repairs, allowing the loan to fund on schedule. | | | Rate: 5.375% | | Term: 10 Years | | Amort: 25 Years | | LTV: 70% | | DCR: 1.25 | | Recourse | | Broker: Shahin Yazdi | | | |  | | Transaction Description: | | $3,480,000 Cash-Out to 80% LTV Refinance of a Burbank Single-Tenant Office Building Marc Schillinger secured the cash-out refinance to 80% of appraised value on a single-tenant office building in Burbank, California. The new loan will effectively operate as a secured line of credit, allowing the borrower to draw down and pay back funds at the Borrowers' discretion during the first 12 months of the term. The loan is interest-only for the first year, priced at 2.91% (L+265). Beginning month thirteen, the loan rolls into a 20-year ARM, amortized over 25 years and priced at 329 over the then-current 12-MAT. There is no prepayment penalty throughout the term of the loan. |
Challenge: The Borrower requested high leverage cash-out on the subject property in order to acquire an additional office building. It is challenging for lenders to underwrite this scenario because of the unknown impact on global cash flows. The request was for the highest leverage loan program with the lowest prepayment penalty and closing fees. It was also important that the loan did not have a short-term maturity or be cross collateralized with the to-be-purchased asset. |
Solution: George Smith Partners worked with the lender to create a unique Mini-Perm structure that catered to the exact needs of the borrower. The new loan allows for a draw of up to 80% of the appraised value at any time during the first year. To further satisfy the borrower's requests, the lender required no points at the close, and agreed to a 21-year total loan term. GSP was able to negotiate a zero prepayment penalty should the borrower decide to lock a long-term fixed rate or liquidate the asset at any time. | | | Term: 21 Years | | Amort: 25 Years | | LTV: 80% | | Prepayment: None | | Recourse | | Lender Fee: Par | | Rate: Year 1: Interest Only at 2.91% (30 Day LIBOR + 265) Year 2-21: 20 Year ARM (12-MAT + 329) Broker: Marc Schillinger | | | |  | | | | When is tiny huge? When is tiny huge? When $250,000 of mezzanine debt is funded behind a $23,000,000 senior note. George Smith Partners is originating stabilized fixed-rate CMBS financing with a Wall Street conduit who is placing their own internal mezz-debt behind their senior tranche. The note and rate are blended in-house, reducing the duplication of paperwork and accounting for the Borrower. This capital provider will fund as low as $250,000 of mezzanine debt to 85% - 90% of the total capital stack. The junior piece will be held on-book and not securitized with senior note. Mezz-debt rates vary based on size, asset type, leverage, etc. but the total blended coupon averages less than 5% fixed for 10 years as of today's indexes. | | | | Hot Money | No MAC Clause CMBS Execution George Smith Partners has closed loans with a privately held corporation that funds fixed-rate and floating-rate commercial loans poised for CMBS execution. These transactions are held on the corporation's balance sheet. Loans may be pooled for securitization or held on-book should instability return to the secondary markets. Stabilized fixed-rate transactions may be rate-locked at application with a two-point deposit and no margin call. There is no rate add-on for the 60 day rate-lock. Secondary market fluctuations will not sideline the transaction as there is no Material Adverse Change (MAC) clause in the application. Commercial transactions are sized to 75% LTV and a 1.25 DCR from $5,000,000. Select secondary markets and "story deals" will be considered for stronger borrowers. | | | If you have an inquiry regarding George Smith Partners' commercial real estate financing, please contact your GSP representative or Todd August, Chief Operating Officer, at (310) 867-2995 or TAugust@GSPartners.com | | | Pascale's Perspective….. | Regulatory Update continued: I discussed Dodd/Frank and other new regulatory effects on different types of lenders in last week's FINfacts. Other entities that may be affected include Hedge Funds, which will have to register with the SEC. A majority of hedge fund managers polled recently were positive about the Dodd Frank reforms as they may be able to do more trading volume now that some banks are being curtailed. Hedge Funds aka Opportunity Funds are important sources of bridge and mezzanine financing. Also, some equity syndicators (borrowers) may have to register with the SEC, thus affect their ability to transact in a timely manner. Greece (again) in the headlines this week. The "fear factor" has subsided this week as bondholders appear close to an agreement on the debt restructuring swap (aka "controlled default"). This is creating a perfect storm for mortgage rates: Treasury yields remain ultra low due to worldwide "safe haven" buying, while CMBS buyers are aggressive and less headline driven than last year…. Coupons for full leverage loans are at or below 5% in some cases… ...Stay Tuned... David R. Pascale, Jr. | |
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