I am wondering what types of refinancing tactics I could use to refinance old debt (6.25%) secured by real estate on a LTV of about 50%, 10-15 years left on the amortization schedule. I have seen in the market around 3.50% interest now days.
The only issue is that the company's taxes aren't current and therefore, my understanding is that, we are not able to refinance with our original bank because they need to see these documents.
Would an investment bank's private placement team or merchant banking group be able to assist with this refinancing? The amount of debt we are holding is in the $5-$10m range. Perhaps structured notes based on the cash flow of the real estate?
WSO has always been great for insights, so I am looking forward to anyone's thoughts.
What is the principal amount being refinanced, what are the prepayment penalties and how many years is the current loan in? Is it a straight amortizing loan where the years are equal to the amortization or is there a balloon payment e.g. 10 year loan term with a 30-year amortization?
What is the total revenues of the building, what are the expenses and if you know it what is the NOI, if you supply NOI then give the expense ratio? What is the property type, e.g. Multi, Com, Retail, Hosp?
Also, who holds the old debt, is it an institution, CMBS...etc?
If your loan is less than $10M, no investment bank will help since the fee would be too small for their efforts ("Investment bank" is very loosely used in RE, and many brokers call themselves that). I don't think even big debt brokers like HFF would consider unless you are willing to pay >3% fee.
Yes, a lender would look at your company's tax returns as due diligence, and if your company hasn't really done that (I really don't know how you can't do your taxes, and frankly someone needs to be fired), no lender will give you money even if it's GS helping you. Maybe a local HNW person who knows your firm's principals and likes the underlying asset can lend money.
There are several market rate lenders that lend across the US without tax returns. Feel free to PM me.
You mean every lender?
No not every lender, clearly. But many lenders today depending on the deal don't require tax returns. PM me if you want more details.
Adding to Iamyourfather's point, a BB will do it at this size - you'll just pay a disproportionately stupid-sized fee (or interest rate, or whatever, however they're getting their economics from the deal)
OP, can you clarify what you mean by "taxes aren't current?" Do you mean your most recent tax filings are still 2014?
Thank you everyone for the responses!
I'll try to address all of the follow up questions with the knowledge I have on the situation, if I do not address a question that was asked, it is because I do not have that information with me:
The principal amount being refinanced is ~$5m-$10m to my best knowledge the prepayment penalty is either the industry-standard rate (if there is one?) or there is a minimal one. The loan is probably 6 or 7 years in. Straight amortization. I believe it is a 15 year loan term, again to the best of my knowledge.
Its a portfolio of student housing (mix is 60% houses, 40% apartment buldings), management is in-house and has been in the business for 30+ years. Occupancy for next year is at about 90%, the remaining units available are 1 or 2 BR apts, which typically lease up over the summer. By taxes aren't current I mean that most recent filings were 2014 and an agreement was made with IRS for an extension of taxes of 2015 (obviously with penalties incurred). Reasoning for this is that our person in charge of taxes has been wearing multiple hats and hasn't had the time to get them current (I know, sounds weird, but thats the situation)
Now that I think about it, our LTV is more like 30-40%.
So my thought process is the following:
Assuming theres 8-10 years left in the loan, and with current rates on 15 year mortgages at around 2.9%, we are paying 300+ bps. I presume a refinance would reduce the interest rate by 200 bps. Thats about 100-200k in interest each year which definitely adds up for the duration of the loan.
What are our options if our bank is unwilling to refi w/o current taxes (and there is no ponzi scheme or anything...the business is performing well, our tax guy just is the bottle neck for documenting the firm's performance)?
Thanks again
This is one contiguous parcel or several adjacent parcels with no breaks? What market is this property in?
If that's the case I think you can get a market rate loan with no returns. Don't know what else to say other than that. I PM'd you.
Possimus veritatis est reprehenderit dolor. Itaque sint eveniet beatae omnis vel ea maiores minus. Perspiciatis omnis aut iste illum tempore quas cum. Numquam tempore est quasi sit numquam aut excepturi.
Praesentium animi vel dolore et consequatur. Odio aut non rem molestias occaecati quam. Nam laboriosam accusamus qui autem dolor. Sed voluptate optio incidunt voluptatem. Eveniet earum suscipit aut accusamus mollitia eligendi.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...