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Small-Cap Retail Deals Signal Increased Capital Availability

July 21, 2010

Hardly a couple years back, many commercial real estate lending officers seemed more concerned about retail properties than any other category - hotels included. And for good reason: a sluggish economy had cut into consumer spending even before Wall Street's late-‘08 crash pushed so many household-name retailers into bankruptcy and beyond.

But as a couple of recent small-balance transactions suggest, regional banks and other lenders are once again actively financing modest-sized shopping centers and stand-alone retail properties - although many prefer to stick with terms no longer than five years.

Boxwood Means, Inc. reports that small-cap retail and shopping center markets have proven to be relatively resilient, with national rent losses in June of roughly 0.30% (30 basis points) and cumulatively less than 6 percent year over year.

As always a deal will attract more interest - and more attractive rates and terms - if the borrower boasts balance-sheet buoyancy along with reasonably creditworthy tenants. And of course it doesn't hurt to work with a seasoned mortgage broker.

The renewed funding sources notwithstanding, conservative loan-to-value ratios that prevail in mid-2010 can still force borrowers to dig further into their own equity pockets.

For instance an affiliate of Retail Plazas Inc., an experienced operator with a dozen centers in the Dallas-Ft. Worth Metroplex, just refinanced its mid-1980s vintage Overland Stage Shopping Center to the tune of $5 million. The 96,111-square-foot Class B property along Green Oaks Road in Arlington is 93 percent leased to the likes of Auto Zone, Big Lots!, Dollar General and H&R Block.

The interest rate on the mortgage from a Texas-headquartered regional bank is approximately 7 percent. The five-year loan amortizes over a 30-year schedule. Cohen Financial managing director Joseph N. Hevey, Jr., in Dallas arranged the transaction.

But reflecting the more conservative lending environment prevailing today compared to when Retail Plazas secured its maturing conduit loan, the bank limited the loan-to-value ratio to 65 percent. That kept proceeds "slightly" below the principal balance retired through the refi, Hevey explains.

But proceeds probably wouldn't have even hit the $5 million mark if the borrower group, including Retail Plazas founder and president Jeff Olyan, wasn't a proven operator with holdings totaling some 2 million square feet in the local marketplace, Hevey adds.

Hevey also notes that the Metroplex economy has held up pretty well relative to most major markets around the country. "We have been successful attracting capital and securing competitive loan terms for strong real estate deals owned by capable sponsorship."

Meanwhile in the Hudson Valley of New York State, an affiliate of another well-heeled commercial property owner-operator, The Hampshire Companies, just secured a $3.57 million mortgage from another regional lender, People's United Bank.

In this case Hampshire secured the five-year, fixed-rate loan after finishing up its latest convenience store for the QuickChek chain, which has been operating in the region for four decades. The new 9,000-square-foot shop is in Wallkill, NY (Orange County).

It's actually the sixth property leased to QuickChek that Hampshire has financed with the help of Holliday Fenoglio Fowler - namely Florham Park, NJ-based senior managing director Jon Mikula and associate director Michael Klein in this case.

Based in Morristown, NJ, Hampshire's portfolio has grown to 20 million square feet of income properties located in 28 states. Assets in which it has interests are valued at more than $2 billion.

Borrower and lender declined to provide additional rate and term information.

NorthMarq Capital originators likewise recently closed on a couple of Metroplex retail refinancings, with correspondent life companies lending the funds.

NorthMarq vice president Phillip Bankhead arranged for $1.3 million in 17-year, fully amortizing financing from American Equity Investment Life Insurance Co. for the 17,000-square-foot Premier Plaza strip center in Dallas.

 

The life company offers what Bankhead describes as a "declining fixed-fee structure" that starts at 7 percent and declines roughly 1 percent each year. For mortgages utilizing the insurer's 15- to 17-year terms, borrowers can pay off at par after year 10. 

 

And in Ft. Worth, NorthMarq vice president John Stewart and investment analyst Brock Yaffe arranged for $1.175 million in fixed-rate financing for 9,244 square feet of shop space at the 2004-vintage Golden Beach Marketplace, which is shadow anchored by an Albertson's supermarket.

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