Jeff Glenn, Managing Director with Barry Slatt Mortgage recently closed a $14,850,000 office portfolio consisting of seven properties located in Sacramento.
- While the objective was to refinance each property through one resource, most of the lenders we engaged were only interested in refinancing a portion of the portfolio, excluding those properties that were considered to be of greater risk.
- Although some of the properties were stabilized, others had vacancies, which significantly reduced the borrower's options.
- Several lenders fell short on proceeds, based on their underwriting policies.
- The majority of the lenders we spoke to were unwilling to offer release clauses, without waiving excessive prepay penalties.
The Mitigating Factors in Reducing Risk to the Lender:
- The borrower acquired the portfolio prior to the recession and was able to weather the storm, in spite of large vacancies, specific to the Sacramento office market.
- Each property was well managed and consistently maintained, which was a motivating factor for tenants, when it came to renewing their leases.
- Although, some of the properties were not stabilized, the global operating history was strong, dating back to when the borrower acquired the first asset.
After contacting 24 lenders, we were able to offer the borrower the exact structure that he requested.
- In order to provide maximum proceeds, the lender decreased the loan amounts on those properties with vacancies, while increasing the proceeds on others that were stabilized.
- In addition to retiring the existing debt, the lender agreed to offer the borrower cash-out.
- Interest Only was provided for the first three years of the loan term.
- Flexible pre-pay penalties with release clauses.
- While the borrower had to prolong the closing until his existing prepay penalties burned-off, the lender honored the rate, in spite of the fact that rates increased by .60 basis points, from the time the refinance process began.