Dissecting the Deal: Ohio’s $100M+ Retail Refinancing

When the owners of a strip mall in North Canton, Ohio needed a $102 million cash-out loan, they faced several significant obstacles. Anchor tenants including Walmart and Lowe’s had leases on the verge of expiring and their location in a lesser-known market discouraged some lenders. So they hired Drew Anderman and his team at Meridian Capital Group, knowing they had the creativity and expertise to position this opportunity to lenders as a worthwhile transaction.

Anderman has over 20 years of real estate finance experience, including time at Deutsche Bank (DB), Credit Suisse (CS), and CIBC World Markets, and is responsible for over $20 billion in commercial financing throughout his career. This sort of expertise has made Meridian the country’s most active deal maker, and one of New York’s strongest firms for transactions of great size and complexity. Meridian closed over $35 billion in financing for companies nationwide in 2016. Anderman and his team expect to do $3.5 billion in business in 2017.

Big Dreams in a Small City: Overcoming Expiring Leases in a Non-Gateway Market

Real estate development company Stark Enterprises sought a $102 million loan to refinance The Strip, a 786,000 square foot retail center in North Canton, Ohio with tenants, including Walmart, Lowe’s, and Giant Eagle, as their current loan – with an existing balance of $79 million – was maturing.

To Anderman, the deal’s challenges were immediately apparent.

“This was a $100+ million deal in North Canton – a non-major city in a non-major state,” says Anderman. “Plus, it was a cash-out, and some lenders have issues with large cash-outs.”

Eclipsing these factors, however, were the leases for tenants Walmart, Lowe’s, Cinemark and Giant Eagle, all of which were set to expire within one or two years of the loan closing.

Anderman and his team were faced with the task of overcoming these obstacles, while ensuring that the loan was not burdened with excessive holdbacks or conditions tied to the expiration of the leases.

A Proactive Approach

 Anderman, anticipating the objections he would face from lenders, prepared a strong presentation that would address any concerns before they were even broached.

“We did a lot of work proactively,” says Anderman. “We knew people would ask, ‘It’s Ohio, there are a lot of strip centers. Why is this center doing well?’ We knew they would ask why people went there, what the competition was, and how they could get comfortable with the possibility of one of the anchor tenants failing to renew their lease.”

Anderman’s team worked with leasing and retail professionals to develop a comprehensive model to address the concerns potential lenders might have under a variety of scenarios. The property overview included the center’s 10-year performance history, and how Stark managed the vacancy of anchor tenants at other Stark-owned centers. By the time negotiations began, Anderman knew the center – and the market – inside and out, and was well prepared to present the financing opportunity in a thoughtful way and respond to lender questions.

“While working with Stark, we learned that their property was drawing consumers from within a 10-mile radius, and that it was the only retail presence in North Canton with these kinds of national tenants,” says Anderman. “People were drawn to the center, and have been for a long time. Our main job, then, was to position this for lenders as a 100 percent occupied center with strong credit tenants who had historically good sales.”

Smart Strategy, Satisfying Solution

 Anderman and his team approached around 20 firms, finding that CMBS lenders showed the greatest enthusiasm for the deal.

“The CMBS lenders were excited,” he says. “On the non-CMBS side, insurance companies and banks liked the sponsor, but were less likely to issue a loan for that part of Ohio. Also, they were more likely to say, ‘unless they get the anchor tenants leases extended for seven or 10 years, we can’t do the deal because the risk profile is too risky for us.’ Or that they were interested, but could only come up to $85 million in proceeds.”

Assisted by a bit of good fortune, Walmart gave notice of their lease extension while the deal was being negotiated, eliminating a potential $5 million holdback. This lease renewal added a layer of security to the deal, creating competition among interested lenders. In the end, after jockeying from several interested parties, Anderman and his team secured a 10-year, $102 million loan for Stark, at a fixed rate of 4.75 percent, from a CMBS lender with no holdbacks, getting the company exactly the deal it had been hoping for.

“The competitive environment for the deal didn’t stop,” Anderman says, “so we knew we had leverage if things didn’t work out – there were several other lenders that would have gladly stepped in. But we were able to negotiate a fair deal that got better as the negotiation went on.”