September 2014

DEAL OF THE MONTH

Anchored Retail Center in Oregon

A grocery anchor tenant terminated its lease prior to loan origination and moved to a neighboring property. As part of the termination, use restrictions were put in place that significantly hindered the borrower’s ability to re-tenant the vacant space to credit quality tenants.

Result:  DPO 

September Deal of the Month

Loan

$28 million

Originated
2007

Modification
Discounted Payoff

Challenge

A grocery anchor tenant terminated its lease prior to loan origination and moved to a neighboring property. As part of the termination, use restrictions were put in place that significantly hindered the borrower’s ability to re-tenant the vacant space to credit quality tenants. The recession brought additional downward pressure on the center and the tenant base never fully recovered. Cash flow was hindered and value was reduced to nearly 30% of the value at origination.

%

New value of the property plummeted to
30% of the original value

Solution

1st Service Solutions spent a considerable amount of time modeling the borrower’s options and gaining significant knowledge of the market. Given the use restrictions and reduced value of the property with minimal upside, 1st Service Solutions then successfully negotiated a discounted payoff to the borrower. This option minimized future losses and produced the highest net present value available to the Trust. Through our high-leverage funding sources, the borrower was able to finance the DPO and close quickly.