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Client transitions portfolio despite low equity and lack of management expertise

Feb 17, 2016

First National structures deal to enable equity injection in shorter timeframe and progressive transfer of management responsibilities.

Key idea: determination, persistence, ingenuity, speed, flexibility

With a two-year term, the client gained flexibility to deleverage debt more quickly. In addition, First National’s negotiation of partial management from the existing property managers created the opportunity for the client to learn the ins and outs of the asset class to maintain building performance. 

What was the client trying to achieve?

The client was looking to transition its portfolio. The family owned several gas stations in the Greater Toronto Area (GTA) and wanted to shift its focus to a single office building in Mississauga.

“The client wanted to meet the aggressive closing timeframe, but allow for the injection of equity in a shorter timeframe as the gas stations sold,” said Adam Powadiuk, Business Development Manager. “I had to be resourceful in addressing the risks in this deal while satisfying the client’s requirements.”

Putting the transaction together

Low equity wasn’t the only challenge facing Powadiuk in this deal. The client also lacked management expertise with this type of asset class. Gas stations are mostly “hands off” management. But the building in question had 40 to 50 tenants and required day-to-day, ongoing management.

“I evaluated the debt serviceability as if the building would continue to function the way that it had been operating,” says Powadiuk. “Part of the solution was addressing that risk by targeting the management gap.”

Powadiuk was able to structure a two-year term, and negotiated with the vendor to stay on as manager for that term. He felt that it was critical, especially in this specific leverage situation, to further protect the client by cementing the level of management that had contributed to positive building performance.

 “The main tenant had a lease rollover at the two-year mark,” says Powadiuk.“By the time of financing renewal, the biggest tenant in the building will have renewed, the equity scenario will have improved and the client will have gained valuable management expertise.”

Why First National?

For Powadiuk, this deal would never have closed without determination. A complex financing scenario, Powadiuk pulled out the stops to help the client secure the building, in the outlined timeframe, with a structure that enabled the deleveraging of debt in a two-year timeframe.

“I delivered exactly what I promised in the timeframe that I promised. Many other lenders would have walked away as a result of the complexity. I stayed with it, took a smart risk, and it paid off,” says Powadiuk.

Initially, Powadiuk tried to satisfy the deal internally, but ended up taking it to the lending community at large. Leveraging First National’s extensive network and reputation, he secured the right partners to fulfill the A/B financing structure.

“I was exhaustive in my efforts to see the deal through from start to finish,” says Powadiuk. “In the end, with determination and resourcefulness, I helped my client get to the result that the family envisioned when it first contemplated transitioning the portfolio.”

 

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Client transitions portfolio despite low equity and lack of management expertise

Feb 17, 2016

First National structures deal to enable equity injection in shorter timeframe and progressive transfer of management responsibilities.

Key idea: determination, persistence, ingenuity, speed, flexibility

With a two-year term, the client gained flexibility to deleverage debt more quickly. In addition, First National’s negotiation of partial management from the existing property managers created the opportunity for the client to learn the ins and outs of the asset class to maintain building performance. 

What was the client trying to achieve?

The client was looking to transition its portfolio. The family owned several gas stations in the Greater Toronto Area (GTA) and wanted to shift its focus to a single office building in Mississauga.

“The client wanted to meet the aggressive closing timeframe, but allow for the injection of equity in a shorter timeframe as the gas stations sold,” said Adam Powadiuk, Business Development Manager. “I had to be resourceful in addressing the risks in this deal while satisfying the client’s requirements.”

Putting the transaction together

Low equity wasn’t the only challenge facing Powadiuk in this deal. The client also lacked management expertise with this type of asset class. Gas stations are mostly “hands off” management. But the building in question had 40 to 50 tenants and required day-to-day, ongoing management.

“I evaluated the debt serviceability as if the building would continue to function the way that it had been operating,” says Powadiuk. “Part of the solution was addressing that risk by targeting the management gap.”

Powadiuk was able to structure a two-year term, and negotiated with the vendor to stay on as manager for that term. He felt that it was critical, especially in this specific leverage situation, to further protect the client by cementing the level of management that had contributed to positive building performance.

 “The main tenant had a lease rollover at the two-year mark,” says Powadiuk.“By the time of financing renewal, the biggest tenant in the building will have renewed, the equity scenario will have improved and the client will have gained valuable management expertise.”

Why First National?

For Powadiuk, this deal would never have closed without determination. A complex financing scenario, Powadiuk pulled out the stops to help the client secure the building, in the outlined timeframe, with a structure that enabled the deleveraging of debt in a two-year timeframe.

“I delivered exactly what I promised in the timeframe that I promised. Many other lenders would have walked away as a result of the complexity. I stayed with it, took a smart risk, and it paid off,” says Powadiuk.

Initially, Powadiuk tried to satisfy the deal internally, but ended up taking it to the lending community at large. Leveraging First National’s extensive network and reputation, he secured the right partners to fulfill the A/B financing structure.

“I was exhaustive in my efforts to see the deal through from start to finish,” says Powadiuk. “In the end, with determination and resourcefulness, I helped my client get to the result that the family envisioned when it first contemplated transitioning the portfolio.”