Many commercial real estate owners have become very wealthy from purchasing underperforming income-producing real estate assets and completing a “value-add” program to increase the value of the property. Once the value-add is completed, the owner sells or refinances the property for much more than what he paid for it, including the costs of the value-add program.
CMBS conduit loans work well for these transactions. We at ValueXpress can provide a bridge loan to complete the value-add program. For information on our bridge loans, click here. The beauty of a CMBS permanent loan take-out is that the loan amount can exceed the purchase price of the property plus the costs of the value-add program. This means the owner can pull out all of his cash equity and more to use for his next project.
“We recently had a request for a cash-out refinance of an industrial park,” commented Michael Sneden, Executive Vice President at ValueXpress. “In 2017, the owner purchased a single-tenant industrial complex in a very desirable, densely populated area of California near Los Angeles, in proximity to I-10, and successfully converted the buildings into multi-tenant use fully leased to 13 tenants.”
The loan request was for $9 million. The existing bridge loan was $6.5 million. The cost to purchase the building, subdivide and improve, complete environmental remediation and lease the spaces was approximately $8 million. Based on cash flow from the new tenants the property was then worth $15 million. The sponsor approached his local banks, but the banks would not approve a $3.5-million cash-out, nor would they consider a loan in which the sponsor had no equity remaining in the deal after closing. The CMBS market embraced the request by offering a $9-million loan with a 10-year term at a fixed rate of approximately 4.5%.
To get a free, no-obligation quote for your next “value-add” CMBS conduit loan, contact a member of the ValueXpress team: Mike Sneden (firstname.lastname@example.org), Dennis Suh (email@example.com) or Gary Unkel (firstname.lastname@example.org).