Boca Raton, FL, Jan 10, 2017: QuickLiquidity, a leading investment firm providing preferred equity and subordinated debt on commercial real estate that have mortgages restricting cash-out refinances, has announced that it has funded $2.55 million of subordinated debt on a 227,357-square-foot office building in Minnetonka, MN. The property, utilized as a wholesale merchandise mart, is fully stabilized with over 100 tenants. QuickLiquidity’s subordinated debt took the property from a 60% loan-to-value up to 75%, with the loan proceeds going towards other real estate investments of the sponsor.
The sponsor is a publicly traded real estate corporation that invests in single and multi-tenant office, industrial and retail properties within the Midwest and South Central regions of the United States.
“It was cost prohibitive for the sponsor to complete a cash-out refinance because of the first mortgage’s prepayment penalty”, states A. Yoni Miller, Principal of QuickLiquidity. “The property was 60% leveraged with its first mortgage, leaving a large amount of equity that the sponsor needed to monetize in a short period of time. In just over 30 days we underwrote the property, structured the debt to be in full compliance with the first mortgage, and closed the $2.55 million loan.”
By having QuickLiquidity provide subordinated debt the sponsor was able to keep its low interest rate and attractive terms on their first mortgage, avoid paying an expensive prepayment penalty, and receive the capital they needed to meet their tight deadline.
The second mortgage is an 18-month term with the option of two 6 month extensions. The property is located on 20 acres with a 5-mile radius population of over 200,000. The property has significant development opportunity because of the Southwest Light Rail Transit line being built with a direct stop on the property. The line is expected to connect downtown Minneapolis with Minnetonka starting in 2021.
QuickLiquidity explains that some of the reasons a sponsor might need to monetize their equity through subordinated debt or preferred equity instead of traditional financing is because of their existing mortgage's prepayment restrictions. This is done in loans through prepayment penalties, yield maintenance, and defeasance. This is often seen in CMBS and life loans.
QuickLiquidity allows sponsors to receive the capital they need while maintaining majority ownership and control of their property. Sponsors working with QuickLiquidity often need capital for tenant improvements, leasing costs, capital expenditures, operational cash-flow, or new investment opportunities.
