Mezzanine Loan Case Study
Private Equity Real Estate Fund
Seven building Class A-/B office portfolio in a core market. Portfolio required significant TI and re-positioning. Client was providing sub-mezzanine debt with a base funding and future funding allowed upon lease up of the project. Entire capital stack of $210 million at closing with earn out to $238 million.
Credit Approval Memo with associated Argus analysis and cash flow analysis. 30 days.
▪Exceder Scope of Work:
- Participation in all due diligence calls, maintenance and distribution of the due diligence checklist.
- Analysis of all in place leases including extension and landlord termination rights.
- Historical CAM reconciliation by tenant to actual operating costs and lease terms.
- Analysis of historical operating history and reconciliation of discrepancies and expense changes greater than 5% by property.
- Order, review and summarize all third party reports.
- Detailed market investigation including calls and meetings with leasing brokers at all competing properties and discussions with investment sales brokers.
- Site inspection of all buildings and the competitive buildings for each property.
- Review Borrower’s business plan and cost projections.
- Review Borrower Argus models for each property including all lease up, CAM pool and rollover assumptions.
- Adjust Argus assumptions by tenant based on market investigation, lease reviews and CAM reconciliation analysis.
- Develop both an As Is and As Stabilized pro-forma cash flows for each property including a tenant by tenant calculation of CAM reimbursements in accordance with lease terms and historical billing/collection.
- Compare underwritten CAM projections by tenant to Argus projections to ensure consistency in methodology.
- Prepare roll up models of both the Argus and underwritten cash flow analysis.
- Analysis of projected cash flow shortfalls and Borrower/Sponsor’s ability to fund all projected shortfalls.
- Multiple sensitivity analysis and modeling of the cash flow waterfall for each scenario to the various loan positions.
- Preparation of the Credit Approval Memo.
- Estoppel/SNDA review and reconciliation.