The property, which was purchased in June 2014 for $1.5 million, was significantly underperforming at acquisition with occupancy at approximately 28%. The owners embarked on a value-added rehabilitation of the property to increase occupancy, cash flow and value. The owners spent approximately $450,000 in building and tenant improvements, increasing occupancy to 88% with leases to over 60 tenants.

Ownership scored a major coup by securing a ground-floor restaurant, Pour Taproom, for 6,500 square feet (12% of the space) under the terms of a ten-year lease. Pour Taproom, which has eight U.S. locations, was started in Asheville, N.C. in 2014 to support and showcase local craft beer. The concept is to offer a unique self-serve system that allows patrons to try a large variety and selection of beer, cider and wine and pay by the ounce.

As a result of the successful renovation and leasing effort, rental income has increased from approximately $550,000-$600,000 at acquisition to nearly $1 million of in-place rents at closing. The purpose of the refinance was to retire high-cost debt that was utilized for the acquisition and rehabilitation of the property, buy out one partner and provide capital reserves for future building improvements and tenant leasing.

“The transaction was completed through our Fixed-Fee CMBS program,” commented Michael D. 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 (msneden@valuexpress.com) or Gary Unkel (gunkel@valuexpress.com).

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The property is unique as it caters to the small business storage segment of the market. The smallest units are 10 ft × 20 ft (200 sf) with a mix of units up to 1,000 sf or more. The property provides amenities desired by small business tenants, including electric for tool charging, community restrooms, parking/circulation and small office suites with a community conference room.

The ten-year loan provided significant cash equity return to the sponsor that will be utilized as equity to obtain construction loans to build additional facilities.

“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 our 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 $2 million to $12 million. To obtain a no-obligation loan quote on your next CMBS transaction through our Fixed-Fee program, contact a member of the ValueXpress team: Mike Sneden (mikes@valuexpress.com), Dennis Suh (dsuh@valuexpress.com) or Gary Unkel (gunkel@valuexpress.com).

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The program provides for a fixed fee of $25,000 for all third-party transaction costs, including appraisal, property condition assessment, Phase I environmental and lenders’ legal costs. In addition, loan documents have been shortened, cash management is typically not required, and reserves for tenant improvements and leasing commissions can be waived. Furthermore, loan structure has been eased, creating a more “user-friendly” CMBS conduit loan.

“The CMBS conduit industry has been grappling with higher transaction costs and more restrictive loan structure since the restart of CMBS conduit lending in 2010,” commented Dennis Suh, Senior Vice President at ValueXpress. “The greatest impact is on small balance borrowers who are not used to high transaction costs and complicated loan structure compared with recourse commercial loans from community banks. Now we have lower costs and a friendlier CMBS conduit loan to compete better with local banks.

The program is nationwide and covers all the typical CMBS conduit loan asset classes — office, retail, industrial, multifamily, self_storage, manufactured housing and hospitality. Loan terms are 5, 7, or 10 years, and interest rates are similar to other CMBS conduit loan programs. The maximum loan-to-value is 75%.

To obtain a no-obligation loan quote, contact Mike Sneden, Dennis Suh, or Gary Unkel.

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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.

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The program provides for a fixed fee of $25,000 for all third-party transaction costs, including appraisal, property condition assessment, Phase I environmental and lenders’ legal costs. In addition, loan documents have been shortened, cash management is typically not required, and reserves for tenant improvements and leasing commissions can be waived.

“The CMBS conduit industry has been grappling with higher transaction costs and more restrictive loan structure since the restart of CMBS conduit lending in 2010,” commented Michael Sneden, Executive Vice President at ValueXpress. “The greatest impact is on small balance ($2 million to $10 million) borrowers that are not used to high transaction costs and complicated loan structure compared with recourse commercial loans from community banks,” said Sneden. “Now we have lower costs and a friendlier CMBS conduit loan to compete better with local banks.”

The program is nationwide and covers all the typical CMBS conduit loan asset classes — office, retail, industrial, multifamily, self_storage, manufactured housing and hospitality. Loan terms are 5, 7, or 10 years, and interest rates are similar to other CMBS conduit loan programs. The maximum loan-to-value is 75%.

To obtain a no-obligation loan quote, contact Mike Sneden, Dennis Suh , or Gary Unkel.

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“Due to the enormous control b-piece bond buyers have to shape the composition of CMBS issues through kick-outs of loans they do not like, origination of CMBS loans for securitization has become a ‘best efforts’ exercise for less-desirable loans for the near term,” said Michael D. Sneden, Executive Vice President of ValueXpress. “If the b-piece buyer blesses the loan, then the lender will close it; otherwise, the lender refuses to close the loan, creating considerable uncertainty and potential wasted time and money for borrowers.”

This process is quite different than what occurred last year. At that time, when a loan was kicked out by a b-buyer, the lender closed it anyway and simply contributed the loan into the next CMBS pool. Now lenders are unwilling to take the risk that the loan would be repeatedly kicked out.

The 5-year term can be selected by the borrower as the desired term when the Term Sheet is executed. Alternatively, the borrower can proceed with a 10-year term option, and if the b-piece buyer accepts the loan, it can be closed and contributed to the CMBS pool as a 10-year deal. If the b-piece buyer rejects the loan, it can be closed as a 5-year deal as a backstop and held on balance sheet. While this may not be ideal, the program provides a reasonable alternative to no loan at all.

“Thankfully the vast majority of our loans pass the b-buyer smell test,” noted Sneden. “Therefore, this program will really serve as a backstop. But there is never anything wrong with having a back-up plan, particularly in volatile markets.”

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One of the negatives of CMBS conduit loans is high transaction costs, which have increased significantly since the restart of CMBS conduit loan lending in 2010. Prior to the financial crisis, a borrower typically incurred transaction costs for third-party reports and searches of about $25,000 on a typical $5-million CMBS conduit loan or even less, say $12,500-$15,000, in a fixed-fee program. But since 2010, transaction costs have risen to $40,000-$50,000 for that same loan, as generally all the service providers are charging more. Compounding the issue is that few fixed-fee CMBS programs resurfaced after CMBS lending resumed in 2010.

However, with competition fierce and conduit lenders needing to find a niche or some level of differentiation, fixed-fee CMBS programs are now starting to aggressively emerge. The new fixed-fee program caps all transaction expenses at $25,000, essentially 50% less than current uncapped levels. The program is for all traditional CMBS conduit loan assets except hotels (apartments, manufactured housing communities, office, retail, industrial and self-storage). The program is eligible for loan amounts from $1 million-$10 million.

“This program will be well suited for borrowers concerned with the high costs of obtaining a CMBS conduit loan, and we expect to originate significant volume for this program,” commented Gary Unkel, Senior Loan Originator at ValueXpress.

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“Those of us with grey hair (or, in my case, no hair) may remember the small-balance, fixed-fee CMBS conduit loan programs sponsored by Credit Suisse and the LaSalle Select program from the pre-2007 era,” recalls Michael D. Sneden, Executive Vice President at ValueXpress. “We did over 100 transactions in the LaSalle program that capped fees at $15,000. It was very cost effective for small-balance borrowers and the streamlined diligence and non-negotiable loan documentation allowed the program to be very borrower friendly. This helped first-time and less-sophisticated CMBS borrowers greatly.”

“We are very active in the $2-$10 million CMBS conduit loan origination market and the return of a fixed-fee program is welcome news,” commented Gary Unkel, Senior Loan Originator at ValueXpress. “The high cost and complex legal/property diligence has been a deterrent for small-balance borrowers seeking CMBS conduit loans. This new program should be attractive to cost-conscious borrowers and allow us to better compete with community banks that typically have lower transaction costs.”

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Variable and fixed rates are available in the 7(a) program. Both are subject to a maximum rate set by the SBA (currently Prime + 2.75% for variable and 8.26% for fixed rates on long-term loans > $50,000 as of April 2014). Both the fixed and floating rate maximums are in excess of market rates.

With competition fierce for owner-occupied commercial loans with good credit characteristics, some SBA 7(a) lenders are adding the fixed-rate option to their 7(a) product line. Helping advance the market are 7(a) loan guarantee dealers that are making markets on the buying and pooling of fixed-rate 7(a) guarantees for sale to investors. One dealer is offering to buy 7(a) guaranteed loans with initial fixed-rate periods of 3 years and 5 years, followed by quarterly adjustments for the balance of the 25-year term. In addition, the dealer is offering a 25-year fixed for life purchase; however, the par price is a 6.25% rate.

Although fixed-rate premiums are significantly lower than floating rates, some borrowers simply will not close a floating rate deal. A banker recently told me that he closed a 5-year fixed-rate deal with a 25-year term at 5.25% for a good client, sold the guaranty for 103 and now services the loan for a 1% fee. While not a great execution, the banker did not want the client to close elsewhere and potentially lose the relationship.

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