The Financing Assignment
A new client was referred to us by his general contractor. The client owned a portfolio of predominately industrial warehouse properties with a few self-storage properties. One of his loans had reached maturity with PNC Bank and they were demanding payoff.
Over the course of 15 years a CPA had acquired 3 industrial properties and 2 self-storage properties totaling 201,730 rentable square feet. He had a few first mortgage loans with PNC on the properties as well as a $1,075,000 line of credit that was secured by second mortgages on all the PNC financed properties. The line of credit was a floating rate loan which had reached maturity. The line originated in 2009 and was used to fund speculative land investments where future development was anticipated or the borrower believed that the asset could be flipped for substantial short term gain. When the market turned the line was still funded and the asset values declined.
1. The real estate portfolio had multiple creditors.
2. The properties with mortgages specifically in favor of PNC Bank were multi-tenant investment properties, leased at market rates. They did not possess adequate values to simply refinance the PNC encumbered properties.
3. The properties involved ranged from B to sub C class.
4. Occupancy of the properties involved hundreds of tenants.
5. Most properties were leased on a month to month basis.
1. In the underwriting and packaging process we analyzed the overall real estate portfolio. As part of our analysis we prepared a global real estate schedule showing detailed existing loan structures, proposed loan structures, existing cash flows, proposed cash flows and anticipated property values. Our valuation estimates were within 3% of the appraised values reached by the independent property appraisers engaged by the new lender.
2. Based on historical cash flows and anticipated valuations we concluded that in order to pay off the maturing line of credit the borrower needed to involve 2 more stabilized properties that were financed with a different creditor.
3. Due to the age and occupancy of these properties prior to taking the loan request to market we convinced the borrower to engage an environmental and structural engineer to determine if any unacceptable environmental conditions were present or any material deferred maintenance or structural problems existed. Once identified we included proceeds in the loan request for deferred maintenance items that we anticipated the lender would require.
4. We closed on the refinancing with Ocean Bank at 4.375% fixed for 5-years with a 5-year extension option. The principal balance of the loan was increased from $10,050,000 (existing with all combined lenders) to $10,900,000. The borrower’s cash flows were substantially improved because the $1,075,000 line of credit which matured was being rapidly amortized by PNC.