A10 Capital, Boise, Idaho, closed a $6.9 million mini-perm loan secured by an unstabilized Class A office building in Texas.
A $4.4 million initial advance provided cash out for operating deficiencies and to cover tenant improvement and leasing commissions on two recently signed leases that will increase the building’s occupancy from 20 percent to 55 percent.
The loan also includes a $2.5 million "good news" loan facility to fund future leasing expenses in order to get the property fully stabilized.
"When the loan was approved, we approved an initial advance and then we also approved a future advance," said Mark McClure, executive vice president of Texas markets at A10 Capital, who structured and closed the transaction. "We committed to provide them additional loan proceeds for 'good news,' as we call it, to address the costs of tenant improvements and leasing commissions for new leases."
McClure said the "good-news facility" can bring tenancy up to an 85 percent to 90 percent occupancy level if A10 Capital approves the new leases. He said the suburban office property "in a primary Texas market" is 10 miles outside of a central business district in Texas.
The bank real estate owned property was foreclosed with a construction loan and 100 percent vacant when the borrower acquired the building. The building was "gray-shelled" with no tenants or tenant improvements, McClure said.
"Due to the property’s low occupancy, the borrower was unable to secure financing from traditional lending sources despite the high quality of the real estate collateral and the strong sponsorship," McClure said. "[The] loan provided the borrower an immediate source of working capital and a future funding mechanism to enable the borrower to reposition the asset over the next few years."
The transaction was structured on a non-recourse basis.
Holliday Fenoglio Fowler's Atlanta office referred the loan to A10 Capital.
"We are very comfortable from a loan-to-value perspective," McClure said. "On top of that, this is exactly what we are looking for. Just because a piece of real estate is not 90 percent occupied does not mean it is not a good piece of real estate. We are looking for opportunities like this...high quality, very experienced and strong owner-operators but, given the property's low occupancy, it was not a candidate for traditional lenders. Most traditional lenders, nowadays, in order to do a loan have minimum occupancy requirements of 85 to 90 percent before they will even consider looking at a new loan opportunity."