Property: Industrial Building in California
Loan Balance: $11.5 million
Problem: The loan on this property was originated in 2007. Cash flow suffered due to market rents and a high amount of vacancies. The current value of the property was less than the loan amount and there was a significant amount of TI, LC that would be required to stabilize the property. Since the loan didn’t mature until 2017, it was reasonable to conclude that the value of the property would recover by maturity.
Solution: An A/B loan structure was negotiated with these terms:
- A Note = appraised value of the property
- B Note = difference between A note and the total loan amount
- New capital contribution from borrower = $500,000
- Waterfall at maturity: (1) A note, (2) borrower new capital plus preferred rate of return at note rate, (3) remaining proceeds split 50/50