In one of the most difficult transactions ever completed by the firm, ValueXpress was able to save its client more than $6 million by providing a $2.5-million loan to pay off $7.4 million in debt obligations secured by 8 KFC (Kentucky Fried Chicken) restaurants located in Ohio and Pennsylvania. “This transaction tested all the skills that I have learned in the commercial mortgage business over the last ten years,” said Gary Unkel, a senior loan originator who orchestrated the transaction. “It all started with a performing loan that provided about 1.0x DSCR held by a regional bank; the loan was constantly criticized by regulators and the bank commented that it would like to get rid of it,” according to Unkel. “I worked with the borrower over an extended period of time to convince the existing lender that there was no way the loan could be paid off in full. Finally, the lender agreed to release five restaurants, securing the loan for a pay-off of $2 million,” continued Unkel. Then the hard part began. Who was going to make a loan on five fast food restaurants on which the borrower was about to create a $6-million loss for a fellow lender? Despite this hurdle, ValueXpress tapped a long-time partner bank in the Midwest to make the loan. “Gary was amazing,” said Genesh Rao, owner of the restaurants. “I work all day at the restaurants, so I could only work with Gary at night on the loan underwriting. I would call him at 9:30 pm during the week and we would work on paperwork until midnight,” said Rao. “I don’t think anyone else would have done that.”
It was not a smooth process. The debt forgiveness was going to create a massive tax liability for Rao, and he would not have the funds to pay it. Unkel researched and found an obscure tax change in President Obama’s stimulus plan that allowed tax liability on debt forgiveness to be paid over many years, and an escrow was structured into the loan to provide for ongoing tax payments. Then another hurdle surfaced. After the loan was committed, a review of the KFC franchise agreement resulted in a discovery that the restaurants were not in compliance with new KFC brand standards. Rao did not have the money to comply and the deal was destined to die. Not one to give up, Unkel petitioned the new lender to create a renovation reserve and increase the loan to $2,500,000, with $500,000 set aside for renovation to comply with brand standards. Unkel collected renovation bids on behalf of Rao, and the loan increase was approved. But wait, there is more. Rao told Unkel that he owned three additional affiliated restaurants tangled in the same bank. Rao and Unkel developed a strategy and were successful in getting the remaining three restaurants released with no additional pay-off beyond the original $2 million!
“I think we will be able to use Ganesh as a reference in the future,” deadpanned Unkel at the closing of the transaction.
