Watkins Industrial Park.

We arranged a $9.5-million CMBS conduit loan for the refinance of a multi-tenant industrial park located in Watkins, Colorado, which is approximately 25 miles east of Denver. The 299,835 square-foot property was constructed in 1970 as a single-user property. The Sponsor purchased the property in 2018 and completed a significant capital improvement program to create a multi-tenant industrial center that is 86% leased to approximately 21 tenants.

The Sponsor’s company, which manufactures Cannabidiol (otherwise known as CBD) from hemp, is also a tenant in the property. This was a groundbreaking transaction for the CMBS conduit market. To our knowledge, this is the first CMBS conduit loan transaction in which a major property tenant manufactured and stored hemp and CBD oil. Although the 2018 Farm Bill reclassified hemp as an agricultural product and federally legal, the possession of hemp is controversial within lending circles. To get all parties comfortable, we arranged for a legal opinion from the leading law firm specializing in Marijuana and Hemp Law, confirming the validity of the legality of hemp possession and CBD manufacturing as outlined in the Farm Bill. This helped pave the way to closing.

Adding to the deal’s complexity was underwriting the owner-occupied tenant portion of the asset, which was critical to financing the asset. CMBS is a capital markets product that is designed for investment properties exclusively. Generally, the market will underwrite an owner-occupied tenant that encompasses no more than 20% of the gross potential income (with some exceptions and needs to be evaluated case by case). A key structural component to add is a long-term synthetic lease guaranteed by the Sponsor. It is important that the Sponsor and the tenant’s financials are solid.

The Sponsor was delighted with the transaction as the CMBS conduit loan replaced the high-cost recourse debt that was utilized to acquire the property. The Sponsor was unsure that we could complete the transaction with the controversy surrounding hemp and CBD oil. However, we worked very closely with the CMBS lender to assist in the B-piece process to securitize the loan successfully, which was no easy feat. The CMBS conduit loan provided by an investment bank featured a 10-year term, 30-year amortization, and is non-recourse. The transaction was originated by Dennis Suh, as SVP at ValueXpress.