Dealmaker: George Smith Partners Secures $31M in Los Angeles
George Smith Partners, Los Angeles, secured $30 million to refinance a 156,000-square-foot Los Angeles retail center.
Shahin Yazdi, Principal and Managing Director with George Smith Partners, closed the deal with Assistant Vice President Matthew Kirisits.
The 10-year non-recourse loan bears interest at 4.91 percent with five years of interest-only payments.
Yazdi said the deal involved several challenges. “The property is anchored by a major grocery chain, but the lease rolls in five years,” he said. “Several other tenants also roll within five years. Also, the property location is in a secondary area of greater Los Angeles.” In addition, sales data was only available for the grocer and one of the separate pads, he noted. The owners did not have sales data for the other 20 tenants.
GSP sourced a commercial mortgage-backed securities lender comfortable with these risks and able to underwrite the transaction aggressively. Because the borrowers successfully kept the property at or near full occupancy for the last several years, the selected lender gave credit for rent increases coming within the next year and used a 3 percent vacancy rate, resulting in higher underwritten income. The lender also sized the deal to a 7.75 percent debt yield, while most CMBS lenders would need a minimum 8 percent debt yield. This resulted in the selected lender providing nearly $1 million more than any other lender.
Because the property owner had invested considerable amounts in capital expenditures and completed major upgrades in the past three years, the lender was able to underwrite to lower replacement reserves as well as lower tenant improvement and leasing commissions, Yazdi said.
George Smith Partners Vice President Zachary Streit and Assistant Vice President Minjoo Kim also arranged a $1 million cash-out refinance in West Hollywood, Calif. that included a 65 percent return of equity at a 3.70 fixed rate.
The Los Angeles-based sponsor purchased the property less than two years ago and has turned nearly half the units since then. The sponsor sought a fixed-rate permanent loan to hedge against rising interest rates and a flexible prepayment structure to allow for a potential refinance or sale as additional value is unlocked through unit turns.
GSP found a lender familiar with the market, the property’s additional upside and the sponsor’s strong track record, which allowed the lender approve the large return of equity.
The 15-year loan will remain fixed for the first five years, then reset and float at 300 basis points over one-year Treasuries for the remaining 10 years. Although the loan provides the benefit of a fixed rate, it included no prepayment premium, Streit said.
