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DALLAS-A 17-property retail portfolio in the Southwest and West is collateralizing a $30-million refi, funded by a private bond sale to 10 US investors. The deal’s dynamics include an 87% loan-to-value ratio and a 1.05x debt-service coverage.

Jonathan Morris, president of locally based BMC Capital LP, tells GlobeSt.com that the high-leverage, low debt-service coverage would only have been possible with the bond offering. “It was looked at more as corporate debt than real estate,” he explains about the financing strategy. “That’s how we got the really high LTV and really low debt-coverage ratio. Instead of using institutions that finance real estate, we used the financing community that finances corporate debt.”

The New York City-based borrower, Jaylor LLC, collateralized the deal with a portfolio of Chili’s restaurants, all Brinker International Inc.-backed leases, of which 12 of the 17 are ground-leased sites. “That’s another thing that would be really tough for the conduits to do,” Morris says. BMC Capital’s Tim Kinney, vice president in Atlanta, packaged the refinance for the private management company, which has a single-tenant, triple-net portfolio with 133 restaurants and oversees more than 300 other units nationwide.

The restaurants, built from 1995 to 2000, are 5,200 sf to 5,800 sf, all positioned in what Morris describes as “good locations.” He says expirations for the Brinker leases, including renewal options, start to come due in 2028 and continue through 2040.

Morris says the bond financing delivered a 20-year term, 20-year amortization and fixed rate of 155 basis points above the 20-year interpolated US Treasury. The deal, he says, took 4.5 months to pull together, but “we were able to rate lock it in two months.” It was fully subscribed within a month, he says, adding the fresh capital is being applied to general operations.

According to Morris, the borrower’s Chili’s portfolio wasn’t a candidate for conduit financing. “What makes this deal really work is Brinker is rated triple Ba2 by Moody’s and triple B by S&P so because of that we could look at the transaction as a credit tenant,” he says, “but that’s not something the conduits would do.”

The refinanced properties consist of two in El Paso and one each in Rogers, AR; Cedar Rapids, Coralville, Coeur d’ Alene, Davenport, Sioux City, IA; Idaho Falls, ID; St. George, Layton, and Logan UT; Omaha, Lincoln and La Vista, NE; Farmington, NM;and Sioux Falls, SD.

BMC’s forte is arranging smaller financing packages, many one-off deals for triple net-leased restaurants. The BMC team has arranged loans for 400 retail one-offs in the past year and 15 other Chili’s properties so far this year. Morris credits the reputation that it’s gained in the sector with putting the deal on its doorstep. He says the pipeline is holding four similar candidates for a private bond offering rather than go the traditional route with conduits, life insurance companies and banks. “We’ve brought into play a fourth source that very few companies use,” he says. “Now that we’ve figured out a way to tap a non-traditional investment source, it will help a lot.”

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