Property: Retail Center in California
Loan Balance: $40 million
Problem: The loan on this property was originated in 2006. The current value of the property was approximately $28MM – significantly less than loan amount and there was a significant amount of TI, LC required to stabilize the property. All projections indicated that the property would recover to a point that would be higher than the original loan amount by the maturity date in 2017.
Solution: An A/B loan structure was negotiated as follows:
- A Note = $30MM (and the A note became full recourse)
- B Note = difference between A note and loan balance
- New capital contribution from borrower = $4MM
- Waterfall at maturity: (1) A note, (2) borrower new capital plus preferred rate of return at note rate, (3) remaining proceeds split 30% to borrower and 70% to Trust up to the B note amount
- After pay off of the B note, borrower receives 100% of the cash