Also This Week: Veteran Investors Form State of TX Real Estate Fund; and Capital Raisings & Property Financings from Annaly Capital Management, Vornado Realty Trust, Mack-Cali Realty Corp., ProLogis, DCT Industrial Trust and Hudson Pacific Properties
Small businesses facing maturity of commercial mortgages or balloon payments before Dec. 31, 2012, may be able to refinance their mortgage debt with a 504 loan from the U.S. Small Business Administration under a new, temporary program.
The new refinancing loan is structured like SBA's traditional 504, with borrowers committing at least 10% equity and working with third-party lending institutions and SBA-approved Certified Development Companies in the standard 50%/40% split. A key feature of the new program is that it does not require an expansion of the business in order to qualify.
SBA will begin accepting refinancing applications on Feb. 28. The program, authorized under the Small Business Jobs Act, will be in effect through Sept. 27, 2012.
"The economic downturn of recent years and the declining value of real estate have had a significant, negative impact on many small businesses with mortgages maturing within the next few years," said SBA Administrator Karen Mills. "As a result, even small businesses that are performing well and making their payments on time could face foreclosure because of the difficulties they face in refinancing and restructuring their mortgage debt. This temporary program is another tool SBA can provide to help these small businesses remain viable and protect jobs."
The SBA initially will open the program to businesses with immediate need due to impending balloon payments before Dec. 31, 2012. SBA will revisit the program later and may open it to businesses with balloon payments due after that date or those that can demonstrate strong need in other ways.
"We are making this initial restriction to make sure our funding goes first to small businesses with the most need," said Steve Smits, SBA associate administrator of capital access.
Borrowers will be able to refinance up to 90% of the current appraised property value or 100% of the outstanding mortgage, whichever is lower, plus eligible refinancing costs. Loan proceeds may not be used for other business expenses. Existing 504 projects and government-guaranteed loans are not eligible to be refinanced.
Congress authorized SBA to approve up to $15 billion in loans under this program ($7.5 billion in both fiscal 2011 and 2012). Together with the first mortgage, this temporary program will provide up to $33.8 billion of total project financing. Additional fees charged to the borrower will cover the cost of this refinancing program and as a result no subsidy will be needed. The program is expected to benefit as many as 20,000 businesses.
SBA's traditional 504 loan program is a long-term financing tool, designed to encourage economic development within a community. A 504 loan provides small businesses with long-term, fixed-rate financing to acquire major fixed assets for expansion or modernization.
Typically, a 504 project includes three elements: a loan (or first mortgage) secured with a senior lien from a private-sector lender covering up to 50% of the project cost, a second mortgage secured with a junior lien from an SBA Certified Development Company (backed by a 100% SBA-guaranteed debenture) covering up to 40% of the cost, and a contribution of at least 10% equity from the small business borrower.
Veteran Investors Form State of TX Real Estate Fund
By: Laurie Forbes
Veteran commercial real estate
investors Mark Jordan and Kevin White formed the State of Texas Real Estate Fund LP. Their goal is to raise $150 million to acquire distressed office, industrial and raw land in Austin, Dallas, Houston and San Antonio. Jordan and White will serve as managing directors of the Dallas-based fund.
The senior executives said they chose to focus on the Lone Star state because the local economy is growing faster than for the rest of the nation, its major cities have earned top marks for the best locations for new jobs and it added nearly three times as many jobs than New York last year.
STXRE has seen some interest from U.S. and foreign backers.
"We are talking to investor groups throughout the U.S, Asia and Europe. The weakening dollar has given foreign investors leverage in purchasing U.S. real estate. Last year alone, the Chinese yuan strengthened 3.3% against the U.S. dollar," said Jordan.
White is chief executive of KGW Real Estate and KGW Capital Management. He has 14 years of experience in Texas real estate and has overseen more than $300 million in investments for global clients.
Jordan owns JP Realty Partners Ltd. and Sooner National Property Management LP. The 20-year industry veteran has closed more than $700 million in deals.
"STXRE will focus on a niche that is overlooked by most institutional investors. We're not buying the fully leased buildings that are being chased and bid-up by everyone. We're buying great properties that are in distress. We then improve occupancy and sell within two to three years. This is a pure capital gain play and that successful formula is the reason for our IRR performance in the past. We expect that STXRE will deliver to investors an IRR of 20 - 22% after expenses," Jordan said.
Capital Raisings & Property Financings
Annaly Capital Management Inc.
priced an underwritten public offering of 75 million shares of its common stock at $17.30 each for expected gross proceeds of approximately $1.3 billion before expenses. Annaly has also granted the underwriters a 30-day option to purchase up to an additional 11.25 million shares of common stock solely to cover overallotments. Annaly expects to use the proceeds to purchase mortgage-backed securities for its investment portfolio.
Vornado Realty Trust
completed a $425 million refinancing of Two Penn Plaza, a 1.6 million-square-foot Manhattan office building. The 7-year loan bears interest at LIBOR plus 2% which was swapped for the term of the loan to a fixed rate of 5.13%. The loan amortizes based on a 30-year schedule beginning in the fourth year. The company realized net proceeds of approximately $139 million after repaying the existing loan on the property and closing costs.
Mack-Cali Realty Corp.
completed a public offering of 7,187,500 shares of common stock today at a public offering price of $33 each, including 937,500 shares issued and sold to the underwriters to cover overallotments. The net proceeds were $227.4 million. The company plans to use the money to repay borrowings under its unsecured revolving credit facility and for general corporate purposes.
closed a $189 million loan for ProLogis North American Industrial Fund (PNAIF). In exchange for additional property collateral, the interest-only loan refinanced an existing loan that was scheduled to mature in 2017. The new loan matures in 2020, and the interest rate was reduced from 6.22% to a weighted average rate of 5.075% over the term of the new loan.
DCT Industrial Trust Inc.
closed its previously announced public offering of common stock. The company sold 21.85 million shares of common stock, which included the full exercise of the over-allotment option by the underwriters. The net proceeds were $111.3 million. The company intends to use up to $95 million of net proceeds to repay amounts outstanding under its senior unsecured revolving credit facility and the remaining net proceeds for general corporate purposes, including for future acquisitions.
Hudson Pacific Properties Inc.
closed a 5-year term loan totaling $92 million with Wells Fargo Bank secured by the company's Sunset Gower and Sunset Bronson media and entertainment campuses. The loan bears interest at a rate equal to one-month LIBOR plus 350 basis points. $37 million of the loan is currently subject to an interest rate swap agreement that swaps one-month LIBOR to a fixed rate of 75 basis points through April 30, 2011. The company is required to hedge at least half of the $92 million term loan within 30 days of the closing. Proceeds from the loan were used to fully refinance a $37 million mortgage loan secured by the Sunset Bronson campus that was scheduled to mature on April 30, 2011. The remaining proceeds were used to pay down the company's credit facility. Located in the heart of Hollywood, CA, Sunset Gower and Sunset Bronson consist of 544,763 square feet of office and support space, 23 sound stage facilities totaling 312,669 square feet, and 1,905 parking spaces on 26.2 acres, encompassing nearly two city blocks.
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