SACRAMENTO, Calif. (Dec. 15, 2016) – Commercial real estate mortgage banking firm Continental Partners, formerly known as Continental Funding Group, has successfully secured $21.4 million in refinancing for a 152,719 square-foot shopping center in Sacramento and a 149,620 square-foot, retail property in Los Banos. The financing was arranged by Continental Partners Executive Vice President J.M. Grimaldi.
“Lenders across the board are being more conservative when it comes to financing commercial deals, especially distressed assets in secondary and tertiary markets,” says Grimaldi. “With the Dodd-Frank regulations taking effect this month and an anticipated increase in interest rates on the horizon, lenders are lowering their loan proceeds and are pricing in interest rate hikes in their underwriting. Given the anticipated rise in interest rates, many borrowers are looking to refinance and are pursuing long-term loans to lock in lower rates.”
The sponsor, a private real estate investor that specializes in acquiring and repositioning underperforming assets, had requested the most competitive terms available to refinance two value-add retail properties located in a secondary and tertiary market, according to Grimaldi.
“In the first transaction, the borrower needed a fixed-rate loan to refinance the Sacramento retail asset and cash out the proceeds to invest in new acquisitions,” continues Grimaldi. “The challenge, however, was that most lenders were underwriting the loan with an unfavorable appraisal based on comps in the area.”
Continental Partners approached a number of lenders that would originate a loan based on the retail property’s new leasing activity and stabilized value. In 2013, the asset was highly distressed and only 57 percent occupied. At the time of refinancing, it was 93 percent occupied, with a new lease signed with CircusTrix, an operator of indoor trampoline parks.
“By demonstrating the potential value of this asset and emphasizing the sponsor’s long-term investment strategy, we were able to increase the loan covenant from 65 percent to 70 percent,” explains Grimaldi.
“Further, we structured a competitive fixed-rate SWAP product that would allow the sponsor to generate additional yield should the prime index increase, which is likely given the anticipated interest rate hike. In doing so, we were able to achieve a debt coverage ratio of 1.40 and meet the borrower’s objectives in cashing out as much as possible for future investments.”
Continental Partners secured the $11.9 million loan from an international bank. The seven-year loan was structured with a loan-to-value of 70 percent with an amortization of 30 years. The property is located at 5400 Date Avenue in Sacramento, California.
In the second transaction, the sponsor requested a competitive fixed-rate product to refinance a JC-Penney-anchored retail center in Los Banos, California.
“The property’s location in a tertiary market, coupled with its current tenant mix, presented an initial challenge,” notes Grimaldi. “The anchor tenant, JC-Penney, is in its first option period of the lease with no sign of renewing. Based on these factors, we utilized a unique loan structure to obtain the best rates available on behalf of the sponsor.”
Continental Partners sourced a state chartered credit union that understood the sponsor’s value-add investment strategy and the potential value of the asset upon stabilization. The firm arranged the loan commitment based on the total stabilized value and incorporated an earn-out structure, enabling the borrower to draw the remaining funds over the next 12 months.
“By incorporating a good news money structure, which would release additional loan proceeds upon stabilization of the asset, we were able to obtain a fixed-rate product with a flexible pre-pay option,” confirms Grimaldi. “In doing so, we eliminated the interest rate risk over the next year and secured an optimal financing solution on behalf of our client.”
Continental Partners arranged the $9.5 million loan, with $6.5 million available in initial funding based on the acquisition cost covenant. The 15-year loan was structured with a loan-to-cost rate of 70 percent with an amortization of 30 years. The property is located at 911-963 West Pacheco Boulevard in Los Banos, California.
Both of these financing transactions come on the heels of the firm’s rebrand launch. Formerly known as Continental Funding Group, the Los Angeles-based commercial mortgage banking firm has recently rebranded as Continental Partners.
“As the commercial real estate industry continues to evolve, we recognized the need to evolve with it,” explains Mitch Paskover, President of Continental Partners. “The real estate sector has shifted toward greater transparency and collaboration, both of which are key to thriving in this competitive market. Our name change reflects our deep commitment to fostering collaboration among our team members, and will position us for growth in the year ahead.”
Continental Partners is a leading national mortgage banking firm based in Los Angeles that provides Market-Smart capital and financial services to real estate owners and developers nationwide. Since its inception, Continental Partners has arranged mortgage loans ranging from $2 million to $200 million for multifamily, office, retail, industrial, hotels, mixed-use and self-storage properties.
With its deep expertise in sourcing competitive debt, mezzanine, and joint venture equity, Continental Partners has established long-standing relationships with both lenders and clients, and continues to deliver sound financing solutions to maximize the value of real estate holdings. The firm offers all major loan types, including fixed rate, floating rate, mezzanine, bridge and construction.