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PHILADELPHIA-An institutional equity investor that cannot be identified during the quiet period in preparation for an IPO has obtained an aggregate of nearly $282.3 million to acquire two separate and diverse portfolios. One consists of 14 office and warehouse buildings. The other contains four independent living properties in two states. In both cases, locally based Remington Financial Group Inc. arranged debt and bridge financing.
With nearly $142.3 million in funding from JP Morgan Chase, the investor and an operating partner have acquired a 2.7-million-sf office and warehouse portfolio for an aggregate cost of $150 million. The assets are spread across 10 Midwestern and Southeastern states and are being acquired from three separate sellers. The sellers of two of the buildings are the properties' respective occupants. One real estate investment firm is the seller of the other 12 properties.
Matthew McManus, RFG's president, declined to disclose the sellers' identity. "Each building is fully occupied by a different single tenant, and all are sale-leaseback agreements," he tells GlobeSt.com. "Because all of the tenants are private companies with no public credit ratings, arranging the financing required extraordinary due diligence to make both the buyer and the lender comfortable with the transaction," he says. Furthermore, one of the properties, a 1.2-million-sf flex property in the Midwest, represents half of the portfolio, "potentially presenting a big risk."
RFG structured a $108-million non-recourse, permanent 10-year mortgage at a fixed rate of just more than 6%, which represented 75% of the acquisition cost. It was collateralized by the properties, but not crossed. The same lender provided a bridge loan of nearly $34.3 million to increase the loan-to-cost ratio to 97%. This has a five-year term beginning at Libor plus 200 basis points for the first two years, and Libor plus 100 for the remaining term.
In a separate transaction, RFG arranged $140 million in debt and bridge equity financing for the same buyer, in a different operating partnership, to acquire three independent living communities in the Dallas area and a fourth in Kansas City, MO. All are from a single unidentified seller, who developed and operated the facilities. The properties have an aggregate of approximately 1,000 units, are about four to five years old, and have an average occupancy in the mid-80%, McManus says. Citing a confidentiality agreement, he declined to disclose the seller's identity.
"While they are class A assets, they aren't being operated to full potential," he says. "The buyer acquired the portfolio at a cap rate below 4%, and the business plan is to raise net operating income to an 8.5% cap rate over the next two to three years by improving operations and implementing high-margin services, including better quality meals." The borrower has a track record of implementing a similar plan, according to McManus, "which provided the lender with the required level of comfort."
The lender is Merrill Lynch Capital. The senior financing is for a three-year term at a floating rate that McManus says is Libor plus 200 basis points. It is joined by a two-year bridge loan from the same lender at Libor plus 450 points. The full funding represents 97% of the portfolio's purchase price.
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