ValueXpress Arranges $1,500,000 CMBS Conduit Loan Through Fixed-Fee Program for the Refinance of All City Plaza Located in Las Vegas, NV

ValueXpress has arranged a $1.5-million CMBS conduit loan for the refinance of a 17,512-square-foot neighborhood retail center located in Las Vegas, Nevada. The property was constructed in 1989 and is located less than four miles northeast of Downtown Las Vegas.

All City Plaza Las Vegas NV

All City Plaza is located near Downtown Las Vegas.

 

The property, purchased by the sponsor in 2015, was 45% occupied and in distress at purchase. The sponsor immediately embarked on a $100,000 property improvement plan that included new stucco siding and paint, new tenant storefronts and awnings, and paving the parking lot. Over a 24-month period, the sponsor was able to lease the property to 100% occupancy with 10 tenants.

The sponsor purchased the property and completed the property improvements primarily with cash on hand. The purpose of the refinancing was to provide cash-out proceeds to return the sponsor’s equity in the project and provide a 10-year loan term at an attractive fixed interest rate.

“The transaction was completed through our Fixed-Fee CMBS program,” commented Michael Sneden, Executive Vice President of ValueXpress. “Usually the transaction costs for third-party reports and lender legal charges are too expensive for small balance CMBS loans, but this program fixes those costs at $25,000, saving $10,000-$25,000 over typical CMBS loan programs.”

The Fixed-Fee CMBS program is available for all typical CMBS conduit loan assets in loan amounts of $1.5 million to $12 million.

For a loan quote on a similar transaction, contact Michael Sneden, Dennis Suh, or Gary Unkel.

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6.8.18: CMBS Spreads Remain Steady

CMBS conduit loan borrowers are finding calm waters as spreads on CMBS securities have been stable at attractive levels for most of 2018. This has help offset the rise in the 10-year Swap rate, minimizing the impact on interest rates for CMBS conduit loan borrowers.

The 10-year Swap rate, the benchmark index for setting interest rates on CMBS conduit loans, has drifted higher in 2018. The 10-year Swap rate started 2018 at approximately 2.50% and now sits around 3.00%, up 50 basis points (bp). Interest rates for CMBS conduit loans are set by adding the 10-year Swap rate and the loan spread, which is derived from CMBS securities prices. The two indexes are added together at loan closing to set the interest rate, which will remain fixed for the entire loan term.

Since spreads on CMBS securities are stable at attractive levels, loan spreads for CMBS conduit loans have decreased about 25 bp and even more for low leverage deals. Stable loan spreads are enabling CMBS conduit loan originators to tighten spreads and accept lower profits as they are not pricing any market volatility into loan spreads, benefitting borrowers.

As a recent example of stable loan spreads, Citigroup and Cantor Fitzgerald priced the benchmark super-senior AAA-rated CMBS bonds of a $668.2-million conduit offering this week at 87 bp over swaps, within a range of 79-92 bp prevalent since March. Market professionals point to relatively low CMBS supply keeping a check on increases in CMBS spreads. Although overall year-to-date CMBS volume is on track with last year, many originators are struggling to keep pace.

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6.4.18: Keep Contractor Work to a Minimum When Closing a CMBS Conduit Loan

We recently had to work through an issue on a relatively simple CMBS conduit loan. The transaction was a 50% loan-to-value (LTV) cash-out refinance of a small neighborhood shopping center that was 100% leased. One of the tenants that will occupy 24% of the space has a signed lease and is paying rent while finishing up tenant improvements, including installation of a sprinkler system, at the tenant’s own cost, in anticipation of opening for business in 30 days.

On the day of loan closing, an inspector from the title company happened to drive by and see the work. The title company would not provide title coverage for mechanics liens because of the work. The closing was postponed.

Even though there is no mechanics lien on the property now, the priority of a mechanics lien typically relates back to the date that the labor, services, or materials were initially furnished by the contractor. During construction (and after the title insurance policy is issued), a lender could lose its first lien priority to a mechanic’s lien if the contractor’s work began before our loan closed.

So since work started before the closing date, a lien dated between the start of work and closing would be in first position ahead of the mortgage, hence the refusal of the title company to provide title coverage for mechanics liens.

What were the options for resolution?

  • The contractor could provide a security bond to the title company for the amount of the contract.
  • The landlord could request a construction control account whereby funds are disbursed only upon receipt of lien waivers.
  • The borrower could post cash collateral with the title company for the amount of the contract.
  • An indemnification agreement from the borrower could protect and indemnify the title company from and against any and all liabilities from the construction work, including mechanics liens.

Once the title company received the construction contract for the work and a financial statement from the borrower, the title company agreed to the indemnification and provided coverage for mechanics liens and the loan closed.

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5.27.18: ValueXpress-Sponsored Team Wins Cricket Tournament

PanAm A defeated Houston A by 21 runs in the 2018 Bhakta Invitational Cricket Tournament held in Dallas, Texas on May 24-27. ValueXpress sponsored PanAm A and was a tournament sponsor. ValueXpress has sponsored PanAm A, which also won the tournament in 2015, for many years.

Team PanAm (note ValueXpress logo on team jerseys!)

Team PanAm A (note ValueXpress logo on team jerseys!)

Over 600 participants and guests attended the event. Matches were played at Russell Creek Park in Plano, Texas. PanAm A moved easily through the brackets, while Houston A played extremely well against its opponents, setting up an exciting final match. Scoring in cricket matches involves two elements — number of runs scored and number of wickets lost by each team. In the final, PanAm A scored 139 runs and lost 7 wickets. Houston A scored 118 runs and lost 9 wickets.

“What an exciting tournament to sponsor,” commented Jay Bhakta, Senior Loan Originator and ValueXpress representative at the tournament. “Cricket is a huge sport in our community, and it was an honor to be among the spectators cheering on the teams. And to be a sponsor of the winning team? Well, that is icing on the cake!”

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ValueXpress Arranges $5,200,000 Loan for the Purchase of a Fairfield Inn & Suites in Chattanooga, TN

ValueXpress has arranged a $5.2-million loan for the purchase of the Fairfield Inn & Suites – Chattanooga South/East Ridge. The three-story hotel was recently renovated to the latest Marriott brand standard by the prior owners who elected to sell the property when the work was completed.

Fairfield Inn - Chattanooga South:East Ridge

Fairfield Inn – Chattanooga South/East Ridge

The property is located on North Mack Smith Road in the East Ridge section of South Chattanooga. Hotel rooms feature comfortable new bedding, free Internet access and spacious work areas. The hotel features a complimentary breakfast, indoor pool, gym, meeting room and business center. The property is in immediate proximity to the new Bass Pro Shop in East Ridge and I-75 access to downtown Chattanooga.

“The transaction was challenging as the sponsor required 80% non-SBA financing and a long-term fixed rate,” commented Gary Unkel, who originated the deal with Charlie Lobetti from the ValueXpress Southeast office. “However, Charlie tapped into his 20 years of banking contacts and found a community banking relationship that liked the sponsor and the property. They stepped up and financed 80% of the purchase price.”

“The loan provided for a 5-year fixed-rate at 4.5% that pays on a 25-year amortization schedule and is recourse to the principals of the borrower,” explained Charlie. “The sponsors would have preferred a longer fixed-rate term, but the 80% leverage was most critical, and the sponsors were very pleased with the results provided by ValueXpress.”

 

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5.25.18: Dry Cleaners Can Be an Environmental Concern in CMBS

Over the years, environmental issues requiring mitigation before a CMBS conduit loan can close have declined. However, one issue related to dry cleaners still surfaces from time to time.

Properties identified as having a current or former dry cleaner that performs or historically performed “on-site” dry cleaning face a Phase II subsurface investigation in almost every instance, if a Phase II subsurface investigation was not already completed.

A Phase II subsurface investigation will determine whether tetrachloroethylene (also known as perchloroethylene or “PERC”) is present in the soil beneath the dry cleaner’s tenant space. PERC is an extremely hazardous chemical known to cause cancer and has been linked to increased risk of developing Parkinson’s disease. PERC can penetrate concrete fairly easily and leach into the soil.

The scope of the investigative work requires drilling small holes in the slab beneath the dry cleaner’s tenant space and testing the soil. The work can cost $5,000-$10,000 or more.

Many of our CMBS clients elect an alternative solution to mitigate the environmental concern. They purchase environmental insurance obtained by the lender. The policy term is 12-13 years (term of loan plus 2-3 years) and the policy premium is roughly a one-time payment at closing of approximately $50,000 (roughly $4,000 per year). The premium is paid at closing only if the loan closes.

We at ValueXpress may be able to assist our clients by having the policy premium added to the loan proceeds. Therefore, the sponsor would not have to come out of pocket for the premium.

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5.21.18: ICSC RECon Takeaway: Malls Will Continue to Shutter and Evolve

Concerns linger regarding the fate of malls in the United States, even as the sentiment among retail real estate professionals remained upbeat at this year’s ICSC RECon, held at the Las Vegas Convention Center in Las Vegas, Nevada.

America’s nearly 1,200 malls will likely be reduced to 600, according to Carl Tash, chief strategist at Starwood Retail Partners. And in some cases the malls that survive will be those that have transformed into completely different uses. Tash notes, for example, that one Starwood mall — Fair Lane Towne Center in Dearborn, Michigan — saw nearby Ford Motor Corp.’s research and development division expand its offices into the mall, overtaking a vacant Lord & Taylor store.

At another property in Nebraska, a local community college is weighing holding classes in a former Bon-Ton location. Joseph Coradino, chairman and CEO of mall owner PREIT, said his firm shed 17 malls in secondary and tertiary markets, which has helped boost its sales to $385 per square foot from $340. He said that the REIT continues to prune its portfolio where needed. “The mall space is changing at a blistering pace,” he noted.

Other firms are also trying to shed properties, but Coradino said the pool of buyers has shrunk and cap rates have risen. PREIT also continues to change the tenant composition at its malls, according to Coradino, shifting from apparel retailers to mixed-use opportunities.

 

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