$64M Finances Lab Space

Gary E. Mozer and Lee T. Norman of GSP, who arranged the funding in two separate transactions, say the borrower obtained the financing for nearly 280,000 sf of facilities. Most firms "can't touch financing like this" because lab space is a very specialized type of commercial real estate that is challenging to finance, explains Mozer, CEO of George Smith Partners, who notes that this is the sixth deal that GSP has arranged for this particular client.

The first of the two transactions provides financing for a portfolio of three properties in the San Francisco Bay-area and one in Southern California. The loan, placed with a life insurance company, was based on 10-year Treasuries plus 2.25%, with a 10-year term amortized over 25 years. The loan is locked for four years with the opportunity for prepayment with yield maintenance thereafter. The loan-to-value ratio was 73.5%.

Several factors affected the underwriting of the loan, Mozer says, including high market vacancies and declining rents in Northern California and the general nature of biotech tenants, which tend to be mostly non-credit companies with limited cash flow due their high research and development costs. The Southern California property also contributed to the risk factor of the overall portfolio because it is a single-tenant building, he notes. The second transaction secured permanent financing for a three-building portfolio in Maryland. The deal required extensive structuring because of the high loan per-sf ratio, as well as news that a credit tenant was vacating its space eight years before its lease expired, according to Mozer. The non-recourse loan was based on the 10-year Treasuries plus 1.9%, with a 10-year term amortized over 30 years. This loan is locked for three years with an opportunity for prepayment with yield maintenance thereafter. The loan-to-value ratio is 75%.

George Smith Partners Inc. is a commercial mortgage brokerage firm specializing in financing acquisition, construction, and mezzanine loans in addition to joint venture equity and highly leveraged participating debt. Since 1997, the firm has arranged financing in excess of $9 billion.