A THG client and the owner of a 436,000 sf warehouse in Yonkers, NY, Alfred Weissman Real Estate, charged us with the task of obtaining Lender approval for a "proposed re-tenanting." Securing a new tenant would add considerable value to the property, but a series of obstacles seemed to make it impossible.
THE BACKSTORY
The Owner had a significant, but fleeting, opportunity to sign an A+ (S & P rated) tenant for the entire property. The original 25-year, self-liquidating CTL financing had remained in place for the past 17 years.
Qwest/CenturyLink, the original tenant of the warehouse, had sub-leased their space to POP Displays in July 2003 (after POP purchased Creative Solutions Group d/b/a Diam International to whom Qwest had originally sublet the space).
In 2016, POP Displays was acquired by Counter Point Capital Partners, leading POP to vacate the warehouse. POP agreed to assign their sub-lease to an affiliate of our client, arranging for a lease-buyout in December 2018.
In 2017, the Owner had attracted the attention of a "Global Distribution Delivery Company" and by January 2018, the prospective tenant had executed a Letter of Intent to occupy the entire property.
THE CHALLENGES
WHO DO YOU NEGOTIATE WITH?
In order to further negotiations with the prospective tenant and potentially bring them to the property, the Owner needed to payoff the existing seven bondholders. These pari-passus, multi-party bondholders were unknown to our client. Given there were no subordination levels and no identifiable Trustee, it was difficult to find a "warm body" and a "decision-maker" with whom to negotiate.
NO PAYOFF PROVISIONS. MAJOR GAP IN VALUE.
There were no stipulated payoff provisions in the CTL documents and no apparent mechanism for the Owner to bring in a new tenant. The existing tenant, Qwest/CenturyLink, was BB rated whereas the prospective tenant was rated A+ (S&P). The incremental value the new lease would add versus maintaining Qwest/CenturyLink as lease guarantor was financially significant given the credit quality gap between the two tenants.
NO REASON TO CHANGE TERMS
The Loan was current. Bondholders received their monthly payments and were not looking to alter any deal terms. THG had to compel the Trustee and expedite and coordinate simultaneous discussions with all seven bondholders. The Global Distribution Delivery Company had other leasing options and was not willing to hang around if the Owner could not complete a transaction.
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