Proven by the California Self-Storage Portfolio
—By Sunny Sajnani
Metropolitan Capital Advisors (“MCA”) recently closed a $4.4mm permanent loan arranged for the acquisition of the California Self-Storage Portfolio—a two property self-storage portfolio that totaled 1,358 storage units located in Central California and that was collectively 65% leased.
Although the deal size was relatively small, the complexity of this transaction was just the opposite. Reflecting on the events that took place and the decisions that were made to consummate this deal, the California Self-Storage transaction supports the notion that using an experienced finance intermediary (preferably Metropolitan Capital Advisors) will add significant value to your capital requirement pursuits, regardless of the size of the transaction.
Below is MCA’s Top 5 list on how our firm delivered superior results in the California Self Storage transaction:
- Confidence: The Borrower purchased these two self-storage assets from two separate distressed sellers at exceptional cap rates based on in-place income. Although the in-place cash flow and equity contribution was sufficient to qualify for permanent financing, these two assets were below market occupancies and were in tertiary markets. This particular Borrower is recourse-adverse and wanted to lock in interest rates at today’s all-time lows. Since this was an acquisition and had a contract deadline, we had to be confident that we would be able to find a permanent lender that did not view this purchase as a turnaround play but rather look at the stable in-place economics.
- Capital Sourcing: This transaction was an acquisition with new cash equity coming into the deal with attractive loan metrics (Loan-To-Cost, Debt Service Coverage, Debt Yield, etc.). We had 10+ debt quotes. We ended up initially selecting the lender that priced the spread (interest rate) most aggressively, but due to some “speed bumps” during the closing process (see #4 below), we recommended to our Client that we move the loan request to a different lender.
- Loan Structure: MCA’s strong suit is to come up with creative solutions that meet our client’s needs! In the California Self-Storage deal, the Borrower wanted to have two mortgages that were cross-collateralized rather than one mortgage that was secured by two properties. There were several reasons for this creative structure: (a) to limit liability to one property, (b) to allow individual properties to be sold and released from the collateral, and (c) to allow individual mortgages to be assumed by a new buyer. We were able get this structure done for our client, but it was very difficult to convince a lender to paper up the mortgages this way because of the relatively small size of each loan.
- Speed Bumps and Detours: As mentioned above, we had a serious speed bump in this deal. MCA and the Borrower collectively decided to move forward with the lender that quoted the deal most aggressively. Four weeks into the deal (third parties completed, title done, loan documents almost finalized, etc.), the lender declined our deal in committee due to the fact that the locations were tertiary and the occupancies were below market. These facts were known all along but were used by the lender to exit late in deal.After this wasted time, MCA leaned into its deep capital relationships and closed the deal with a lender that we were more confident would execute. Though we initially tried to get the best pricing, we found that to get the deal done, we needed to pursue greater “certainty of execution” in a lender instead.
- Client Appreciation: This acquisition was for a repeat client of the firm. Here is an actual testimonial from the client: “Sunny – when [the first lender] blew up six weeks ago you said that you would get this done. And, you and your team did… Thanks very much for helping me through all the bumps.” Value creation is what we strive for, and these types of problem solving are why we have repeat clients.
The value of using an experienced finance intermediary (i.e. MCA) was a reoccurring theme throughout this transaction. MCA is not only fearless in the wake of difficult deals—we embrace them with open arms. Clients see the true value of having our firm on their team, especially when times get tough. Once the value perception is acknowledged, Clients keep us in the loop on all of their real estate capital requirements.