LOS ANGELES—According to George smith Partners SVP J. Jay Brooks, lender flexibility was crucial in securing a $172.3 million bridge loan for a portfolio of 36 assets under litigation. In an earlier story, GlobeSt.com reported that George Smith Partners secured the loan on behalf of the borrower, who will use to proceeds from the loan to pay creditors off in full.

“With a portfolio of properties that have good historical cash flow, the lender asks why would those properties be in litigation. It just doesn't make sense,” Brooks tells GlobeSt.com. “It only made sense in the context that the existing debt matured during the recession. At the time, there might have only been two or three or four CMBS lenders, but by the time this closed, there were 20 CMBS lenders. Now, this is not a CMBS loan, but that is an indicator of how much capital was available in the market. So, we had to find more of a balance sheet lender that had a securitization component that would allow us to get this deal done, but that also had to be a very flexible platform to get this deal closed.”

In the end, Brooks was able to tease out underperforming assets in the portfolio and pair them with performing assets to create sub pools. Then, Brooks teased out assets with other issues, like environmental issues, within the senior lender and allocated between senior and mezzanine debt. “That flexibility was amazing. It was incredible that the lender had the capacity to do that and still get what I think was a really good interest rate for my client,” he says.

He didn't arrive at a lender that would allow for this flexibility immediately, however. The process took five years, during which there were many “false starts,” as Brooks puts it. “This was a really complicated deal. The capital markets are changing so rapidly, so this was three-dimensional financing where you just have moving parts all around you,” he explains. Because this deal had so many moving parts, picking the correct team and picking the correct lender was the key. “We really had to find a lender that would listen to a story,” he adds. “Even though this story was not complicated, it had some background noise that, although didn't make it a bad asset, would have been a nonstarter for any commodity type of lender.”

Picking the correct lender also helped to mitigate risk and ensure that the deal would go through. When asked why he didn't consider splitting the portfolio up between many lenders, he explained that the risk would be too high. “If on 36 properties, you decide you are going to go with seven different lenders and one blows up, the entire deal blows up. At the point in time when you make a commitment to a particular lender or group of lenders, there is no looking back. You have got to know that this deal is going to close.”