Dealing With Office Loan Maturity 12 to 24 Months Out
Let’s say you have an office project with debt maturing in 12 to 24 months. If you can’t do a cash neutral refi, but don’t want to put in additional equity for a pay down, what’s the next step? Seems like most lenders wouldn’t want to engage when a maturity is still 24 months out. Additionally, if you have potential leases that require capital, do you sign the leases and spend the TILC dollars now, or try to hold off on signing anything as a way to convince lenders to engage early? Trying to figure out the best analysis to run for this kind of situation.
I'm in AM at a debt fund. If you asked me for an extension on a deal 2 years out for free with no additional equity contribution, I would tell you to kick rocks. I'm not afraid to own that building and if you don't have any money, then I don't really need you, I can handle the asset myself.
I'm currently working on an office deal with a maturity that is pending (they didn't meet the DY test for the extension). To get that 1 year extension, we are raising the rate from SOFR 300 to SOFR 450, changing the floor from 25bps to 300bps and getting a 10% cash infusion split between a pay down and interest and carry reserve replenishment.
WIthout the ~20mm capital infusion from the sponsor, we would just let the loan mature and take the property via mezz auction in 90 days
Echoing the above point, the realization that your office building simply cannot support the leverage/valuation it did at origination compared to where it is now seems to come across as chinese to sponsors. Cash-in Refi might be the best case scenario for a lot of situations...instead of wiping out (Ex:) $30MM in equity by giving back keys, pay a fraction of that ($5-$10MM) in the form of a cash in refi and let your equity recover over the term of the loan when things could be better in a few years (leasing, int rates, WFH sentiment, caps, etc.)
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