Commercial Real Estate Finance: California Shopping Center Loan Refinance
Commercial mortgage broker Financial Compound arranges a $13.5 million refinance for an 76% leased, former K-Mart anchored retail center that was repositioned after Kmart went dark and left the center 20% occupied. Prior to Kmart’s bankcrupty filing, the property was 100% occupied for many years. The K-Mart space was subdivided into a few “small box” retail spaces and in line spaces. A pad building is going to be demolished and rebuilt to accommodate additional new food tenants. The borrower commenced a re-tenanting effort and achieved 58% lease up prior to the loan application signing, and met the 75% leasing requirement for closing.
Commercial Mortgage Broker Financial Compound structured acceptable credit risk mitigants into the loan for the lender to accomodate this pad development and still allow for a 75% LTV, ten year permanent loan fully funded at the initial closing. Other loan terms include a 30 year amortization schedule, no personal guarantee required, and a fixed interest rate in the low 6s.
Loan proceeds were 97% of all costs including: (1) Payoff of existing loan; (2) Re-leasing and renovation costs; (3) Interest Reserves; (4) All closing costs and fees.
Existing financial structure has the borrower as ground lessee with the ground lessor holding the first mortgage on the improvements. However, a clause in the ground lease states that upon loan payoff, the ground lease could not be encumbered again in the future! Existing lender filed a NOD. However, Financial Compound and the borrower demonstrated to the existing lender that a refinance of the ground lease was impossible since a mortgage was prohibited and it would require a loan collateralized by the partnership interests of a shopping center in transition. Financial Compound demonstrated this by sharing feedback from the mezzanine lenders that we spoke to during the NOD and trustee sale filings. A purchase of the fee title to the property was subsequently negotiated by the borrower, which made this refinance possible.
The property’s submarket experienced an outflow of credit tenants as newer retail developments emerged in the nearby submarkets. A couple of the new anchor leases have co-tenancy and cancellation clauses based on gross sales. Financial Compound was able to demonstrate a strengthening of the local trade area despite an overall decline in the submarket; due to a prime location a block from the freeway and on the main arterial.
Terms: (1) Rate: Prime +2.00%; (2) Term/Amort: 2 years/Interest Only; (3) LTV: 75%; (4) Extension Options: 2 six-month options for 1.0% each (in loan fee); (5) Recourse; (6) Prepayable at any time at par; (7) Lender Fee: 2.0%
A strong commercial mortgage broker like Financial Compound can be invaluable for both borrowers and lenders in structuring and processing complex commercial real estate finance transactions. A shopping center refinance with the characteristics of this transaction would normally only qualify for a short term hard money or bridge loan. However Financial Compound was able to come up with some creative and unique risk mitigants that allowed a permanent lender to get comfortable making a long-term fixed rate loan on this center.