Central ValleyDowntown Mall • Bridge Financing Request • Acquisition/Value Add • Originally built in 1971 • Redeveloped in 1993 • 1.185 Million Sq Ft • 400,000 Sq Ft Retail • 285,000 Sq Ft Office • 500,000 Sq Ft Anchors (not part of collateral)
Central Valley Downtown Mall Strengths: Borrower ability to purchase security off-market. Purchase well below replacement cost (~$50 psf or about 85% discount from 2007 appraisal). Sponsorship with track record on tough value add deals, and compelling business plan. Challenges: Low occupancy: ~55% on retail, ~35% on office. Declining mall: “dark” space, difficult to keep national tenants, endangered by lease clauses. Difficult market: 12% unemployment, high vacancy. Office leases with Government tenants. Capital required for TI/LC.
Central Valley Downtown Mall Why it didn’t happen: Going in occupancy too low. Unappealing market. Limited appetite for retail product. Complex and risky business plan. Significant redevelopment/construction want recourse. Too opportunistic. Turnaround plays on mall don’t fit equity expertise (if lender has to foreclose).
“BAD” DEAL• $20 million refinance, full- occupied retail center• 100,000 ft.² , food and drug anchored center• Urban Infill location in major Midwest market CHALLENGES:1. Aggressive Underwriting - maximum loan proceeds with complete cash out of all equity and existing debt.2. Tenancy - Health club, big-box electronics retailers, non-reporting sales psf grocer.3. Sponsorship – Pending legacy issues.
One That Didn t Work• Denver, CO high-rise apartment development• Large deal size - $80M• 65% construction loan• 35% equity• Option to add mezz financing up to 85% of the capital stack• Top of the market proforma rents
Apartment Development12010080 Equity60 Mezz Debt ‐ 14%40 Construction Loan ‐ Libor20 + 225 0 Capital Capital Stack ‐W/O Stack ‐W/ Mezz Mezz
Denver, CO High Rise Apartment Development• Total capitalization - $80M• 65% LTV construction loan due to size ($52M)• Equity amount – $28M• 3.25% debt interest rate w/o mezz (65% LTV)• 5.77% blended interest rate w/mezz (85% LTV)• Equity Multiple – 1.71 w/o mezz, 2.04 w/mezz• Levered IRR – 17% w/o mezz, 22% w/mezz• Yield on cost – 7.25% in either scenario• Investor required return – 2.0 equity multiple, 20% IRR
“GOOD” DEAL• $50 million new construction• 200 units luxury, mid- rise podium• Infill location in major Western sunbelt market• Seasoned developer CHALLENGES:1. New construction - completion risk and high costs2. Oversupply - Large supply of foreclosures3. Funding - Very limited construction loan funds
“Good” Deal Capital StackCAPITAL STACK LEVERAGE (YIELD) UNDERWRITINGConstruction Loan 60% (2.75%) Bank funded at 250 bps + Libor with 3‐5 yr mini‐perm.Mezz Loan 15% (12%) 7% coupon rate with 12% IRR look back coterminous w/Construction. No participation vs. Pref Equity.JV Partner 12.25% (30%) 49/51% Pari Passu on net cash flow w/ 30% IRR, 40/60 thereafter. Project control limited (capital decisions.)Sponsorship 12.75% (30%+) Full control and guarantees and recapture of land profits before any reversionary profits.
CAPITAL STACK OPPORTUNITIES:1. Shop the Stack – Lot’s of money, limited deals2. Rates at the bottom – Moody’s Baa spreads widening. Alternative investments and “floors”3. Wraparound – Capture low rates and worry later
One That Worked• Single Tenant Triple Net Retail Portfolio• Acquired in a DST structure• 50% LTC CMBS permanent debt• 50% bridge equity• Approximately 2/3 investment grade, 1/3 sub- investment grade
CBD Office San Francisco • Acquisition • Value-Add Deal • Built in 1912 • 129,000 Sq Ft • 14 Floors + Penthouse • 9,000 Sq Ft Floor Plates • Updated Common Areas
CBD Office San Francisco Strengths: Rebounding market ‐ growing demand for this product type. Prospective leasing providing “upside” potential. Strong North Financial District location. Experienced and capable sponsorship. Good basis. Challenges: Low occupancy at 74%. Near term lease rollover ~50% in 2012-2013. Capital required for tenant improvements, leasing commissions, and building improvements.
CBD Office San Francisco Financing Summary: Structure: Initial funding with a capital improvement and TI/LC “holdback” reserve. Term: 4 years Amortization: 1 year interest only, then 30-yr schedule Recourse: non-recourse Rate: Mid-4% fixed rate Lender: Life Insurance Company Prepayment: 2.5% 1% 0.5% open last 6 mos. @ par. LTV: 55%
Waterfront OfficeSan Francisco • Refinance of Construction Loan • Redevelopment of Historic Piers • Completed in 2006 • 83,000 Sq Ft • 64,000 Sq Ft Office • 19,000 Sq Ft Restaurant • 40,000 Sq Ft Portwalk
Waterfront Office San Francisco Strengths: 100% occupancy; mix of quality tenants. Irreplaceable asset in sought after waterfront location. Experienced and capable sponsorship in partnership with a teacher retirement fund. Low leverage (<50%) financing request. Challenges: Office rents at upper end of SF Market ($55-$75 psf) Ground leasehold and historic tax credits. Major tenant rollover within loan term. Restaurant income. High $ psf loan request.
Waterfront Office San Francisco Financing Summary: Use of Funds: Refinance construction loan Term: 7 years Amortization: 30-yr schedule Recourse: Non-recourse Rate: Mid-4% fixed rate Lender: Life Insurance Company Prepayment: T+100 2% year 5 1% year 6 Open year 7 LTV: 50%