The Challenge:
An institutional equity investor obtained an aggregate of nearly $282.3 million to acquire two separate and diverse portfolios. One consisted of 14 office and warehouse buildings. The other contained four independent living properties in two states. In both cases, Remington Capital arranged debt and bridge financing.
With nearly $142.3 million in funding from a global financial services firm, the investor and an operating partner acquired a 2.7-million-sf office and warehouse portfolio for an aggregate cost of $150 million. The assets were spread across 10 Midwestern and Southeastern states and were acquired from three separate sellers. The sellers of two of the buildings were the properties' respective occupants. One real estate investment firm was the seller of the other 12 properties.
"Each building was fully occupied by a different single tenant, and all were sale-leaseback agreements," Remington advised. "Because all of the tenants were private companies with no public credit ratings, arranging the financing required extraordinary due diligence to make both the buyer and the lender comfortable with the transaction."
Creating some challenges was one of the properties, a 1.2-million-sf flex property in the Midwest. It represented half of the portfolio and was potentially a big risk.
The Remington Solution:
Remington structured a $108-million non-recourse, permanent 10-year mortgage at a fixed rate of just more than 6 percent, which represented 75 percent of the acquisition cost. It was collateralized by the properties, but not crossed. The same lender provided a bridge loan of nearly $34.3 million to increase the loan-to-cost ratio to 97 percent. This had a five-year term beginning at Libor plus 200 basis points for the first two years, and Libor plus 100 for the remaining term.
In a separate transaction, Remington arranged $140 million in debt and bridge equity financing for the same buyer in a different operating partnership. This allowed them to acquire three independent living communities in the Dallas area and a fourth in Kansas City, MO. All were from a single unidentified seller, who developed and operated the facilities. The properties had an aggregate of approximately 1,000 units, were about four to five years old, and had a mid-80 percent average occupancy.
"While they were class A assets, they weren't being operated to full potential," Remington said. "The buyer acquired the portfolio at a cap rate below 4 percent, and the business plan was to raise net operating income to an 8.5 percent cap rate over the next two to three years by improving operations and implementing high-margin services, including better quality meals."
The borrower had a track record of implementing a similar plan, according to Remington, "which provided the lender with the required level of comfort. The lender was one of the world's leading financial management and advisory companies. The full funding represented 97 percent of the portfolio's purchase price.
Hunter Brink
Remington Capital Inc
hunter@remingtoncapitalinc.com :: (480) 248-9152
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