Last week we provided some exciting information for small balance CMBS borrowers ($2 million-$10 million) with the introduction of a fixed-fee CMBS conduit loan. The fee — $25,000 — covers all third-party transaction costs, including appraisal, property condition assessment, Phase I environmental and lenders’ legal costs.
Other benefits to this program are important as well. We touched last week on the “lighter” Loan Agreement. It is shorter and more typical of community bank commercial loan agreements. Furthermore, there is no cash management required in the fixed-fee program. Cash management has become a sore point for CMBS borrowers and waiving this requirement is a big win for CMBS borrowers. In addition, an opportunity exists to have escrows for capital improvements, tenant improvements and leasing commissions waived for low leverage deals or waived in exchange for partial recourse in higher leverage deals. There is simply more flexibility in the fixed-fee program than typical CMBS conduit loan programs.
“As an example of how good this program is, we recently had a hotel deal in which the franchise agreement was to expire in three years,” commented Michael Sneden, Executive Vice President at ValueXpress. “The expiration was too far out to get a renewal and associated Property Improvement Plan (PIP), but it was too soon to collect enough reserves for the eventual PIP.”
The solution was to collect $375,000 through regular monthly FF&E collections in conjunction with a $1-million personal guaranty for the balance of the estimated PIP. The guarantee will burn off once the PIP is 100% completed and paid for.