Q&A Highlights

Transcripts

Today we're joined by Pace Loan Group CEO Rafi Golberstein and Head of Loan Structuring Jerry Ellis. Deals are complex, especially when involving unique assets. This episode explores a wide variety of hospitality projects and how C-PACE gets the sponsors the most efficient structure to achieve their business plan.

So then we can go to New York's kind of like, I don't want to offend too many people here, but, like, you know, ugly stepbrother next door to New Jersey. Which one do you want to go to first? Let's go to the the funky one, the water park. Okay. All right. So, Jerry, you had the honor of closing the first ever C-PACE deal in the state of New Jersey.

Period. Hard stop. First to market, never been done before. That's right. On December 31st. All right, so I think the market, or I'm sorry, the the program came online August 31st, something like that. It had been years in the making. That's about two years later past when actually I think the governor had signed the legislation.

So it took a quite a while. Yeah. And then I as I recall it, even your recollection may be different. Somewhere around October you called me up and were like, Rafi, we got a water park in Atlantic City. It's going to close by year-end. And I'm pretty sure what I at least said to myself.

In my head was no freaking way, Jerry's full of shit. There's no way. It's just not going to happen before year end. But it did. It did. We signed it. Like November, early November. We signed the term sheet. Yeah, that was a fast close. It was something like that. But I want to say it was. Yeah. That's right. Yeah. Jeez.

And so this one from, from my perspective and your and Bali's is probably a little bit different to sitting  in different aspects of this deal. Like there was there was a lot of wood to chop on this. I mean, A. you had a really tight clock. You effectively 50 days to get it done. You had the county or the city had to opt in to the program, and then you had just the fact that you're effectively financing a water park for $45 million.

Let's start first with there was a retroactive period, that that the New Jersey program that adopted basically saying, look, if you have a retroactive deal, if you can submit the application by December 5th, this was one exception for prevailing wage. So that was the really the timeline, right? Was the meet that and then it was close thereafter.

And that was I forgot about that. Yeah. December 5th. So we had to like hustle the the entire energy audit done in effectively a month. Yes.

On a unique asset class. Yeah. I mean basically we had to get effectively the deal had to be baked by then. And then we could close thereafter. Unique situation. This sponsor is a Philadelphia based developer. Very substantial. He bought this property, which was it was a hotel casino, on the boardwalk in Atlantic City.

He bought it. The the seller was, a gaming company that put a deed restriction that node gaming could be at the property for ten years. I want to say. So he bought it in 2016. Renovated their two hotel towers. There's a multifamily tower that he built in the back as well. And then there was a four acre parcel, that was, adjacent to, the hotel.

So in 2023, he started construction of a water park, which he then completed, like it completed in 23. At some point, 125,000 indoor water park, I would say one of the largest in North America. It's I don't know if it's close, if it's not the largest.

I mean, there's 100,000ft of water park, and then there's food and beverage and cabanas and, you know, it basically it mimics kind of a boardwalk feel. Right? Even though it's, it's enclosed. It is on the boardwalk. But it that's why that's the whole theme. Right, right. But it's, it's pretty remarkable. I think it's first year it had 300,000 visitors to the water park, which is staggering, really.

And did very, very well. And it was a unique situation. It's not I will say it's my first water park that I ever financed. You escaped the site visit. Someone else went in your stead. Yes. But it was also a situation where our loan was. The loan to cost was 20%, something like that.

It cost a staggering amount to build. So there's a lot of equity in the deal. There were some funky capital that was in the transaction that the sponsor needed to get basically recapitalized. And we provided liquidity right away. I mean, we defensively, we did. I mean,it was enough for him to, he still has a substantial amount of equity in the transaction, but it was enough for him to, recap what he had in the deal and put it to put it to rest on long term money, for sure.

Yeah. It was like a a recapture of equity, but not a cash out, because he's not at all a ton of skin in the game. I mean if this had been a ground up deal without a past on it. No. But we had we had two years of operating results which were huge, huge.

Yeah. And so it it worked. There was also there's some upside relative to the cash flow because he was he had renovated one of the towers, of the hotel tower. So there was off line. And yet it still had a sufficient cash flow when the towers was off line. For renovation. We still had good coverage.

So there's some upside going forward, is what I'm saying. Yeah. And the collateral here, aside from it being a modern park, which is unique, you know, we're situated, like I said, Jerry, like there's other aspects to the to the larger campus. You know, they were all effectively separate parcels. They were all individually financed. So there I think they were like including us 4 or 5 lenders were all part of this larger campus financing and a line of institutional lenders.

Yeah. Like Wall Street. Yes. Big firms. And a lot of cross easements to make sure that everyone had access to everything else. And, you know, so there was some added nuance to that aspect. But the whole thing, I mean, just it went by phenomenally fast. Well, to your point, earlier, the we had to get, Atlantic City to adopt or opt in to the program where we had to meet the timeline, with regard to the prevailing wage waiver.

All right. So and we had to close by 1231 to clean up the the capitalization of the deal. So there's a lot going on. Okay. So this question came up on a different podcast. We did about a data center. And the general question was how do you have a how do you have an energy efficient data center. And so I'm going to pose the same question to you.

How do you have an energy efficient water park? Well, just think I think it's it's really there's two it's twofold. One because of the indoor aspect of it. Right. The HVAC was significant. Right. The cooling and the second part is the water and recycling in the water. So that was yeah, it was different for sure.

But we ended up roughly, whatever, 20% of, the total cost of the deal. So, I mean, the substantial amount the construction cost here was very high. Yeah. And and so we ended up being, 20% of that, which was the qualifying, amount, via new Jersey PACE. Yeah. I mean, this is this is a fun and funky deal that you got done fast and furious.

And I really like the business plan. Right. I'm from New York City. My father, huge gambler. I spent a lot of time as a child in Atlantic City or at whatever casino would give him a free night or two, of hotel stay. And so for me, as a child, my father basically give me 50 bucks and be like, all right, I'll see you a few hours.

And so, like, this is the type of thing that makes Atlantic City, you know, the family friendly place where it's not just parents gambling and kids just walking aimlessly on the boardwalk. So this sponsor bought it and with the deed restriction, doesn't have an interest in doing gaming. He built the world's largest arcades in. He's an arcade also as part of the property issues, which is massive.

And that's another 100,000ft or this arcade. So are you a duck hunter? A skee ball person? I have no idea what you're talking about. So clearly I'm not an arcade God. Nope. Skee ball probably for me personally. Or pop-a-shot, right? I don't know that is. Oh, yeah.

Yeah. I mean, so it's a family to your point, it's family friendly. And that's what he he's done and marketed and I think successfully sure enough, with the waterpark. Yeah. And your 90 minutes from Philly or a couple hours from the city like it's so you know AC is a unique place but it's definitely I mean it's got it's it's demand and draws for sure.

And the operators are doing a great job marketing it for, you know, to be everything for everyone. So you could have went there for New Year's. Yeah. And rented a cabana and got a bottle and rung in the new year. Yeah. They have adult night swim. They have obviously stuff for kids, plenty of stuff for kids. So families, kids, you know, young couples.

So what's interesting is that they, they're open. So really April to October full time and then it's weekends or vacation time. And so when you think about doing 300,000 visitors with effectively nine months, when you add in all the weekends, plus the full time opening, it's also a lot of people. Yeah. We sent our underwriter out there, you know, before we closed to go see it.

And I remember talking to her and I said, Sam like, aside from touring the property, you gotta like, use the slides. Like, we can't finance a waterpark that no one's actually tested. And I didn't know how she was gonna react to that. Yeah, but she was awesome. She's like, you know, she's in her mid 20s and, you know, she was there by herself in the middle of the day and she did every slide.

And she was there for hours. She had a great time. She did. She actually sent me an email before she went. She's like like I'm thinking about these dates. If you want to come and bring your girls, I'll take them in the water park. It's a great offer. It's just not going to work.

So that's for all due diligence there. Yeah. You got the to kick the tires. You got to see the assets.

But perhaps your family will make a journey to AC next year. You're like, they'll say, yeah, I think so. All right. So that's kind of the, water park and you know, interesting for a lot of reasons, you know, notwithstanding being the first, which is no small feat in the state that took for freaking ever to get this program up and running.

And in many ways, I think it's going to it's going to it could completely, you know, put New York to shame by saying, hey, we're actually open for business now. Like watch new Jersey surpass New York in volume. I will tell you that, we've closed in on the 31st and by reputation and referrals, we have two other Jersey deals that have come in and and within a week we hasn't there hasn't been a press.

Yeah. You know. Yeah. I mean, you're mentioning something which is, you know, the referrals and the fact that we're able to get this deal closed in effectively 50 days. But even last, we think about the fact that you had to get the application submitted by the 5th of December, 30 days, but so that that is like a lightning fast for a C-PACE deal.

It's not uncommon for C-PACE deals to take 5 or 6 months to close. So like a 30 day window is almost unheard of for a C-PACE financing. And that's why the referrals are coming from the from the sponsor of the deal. Yeah. Which is it's the best kind of referral you can get. Yeah.

I asked a question at the beginning, like, why hospitality, you know, for PLG. And I think honestly for the industry, you know, our top three asset classes historically and still are hospitality, senior living, and multifamily. So what is it about hospitality that is just so PACE friendly in any number of situations? Like it's just seemingly such an easy fit.

I think really it's the alternative capital sources that you could have in the stack or much. It's not as efficient. It's not like multifamily where you can you can get bank financing and construction and, or you have agency debt. Right. That's and well, hospitality is still a more difficult asset class to underwrite. And also to obtain the appropriate capital.

So, leverage is one issue, pricing is another issue. It just fits for PACE very well because for, for us at our in our position, it's, you know, we can price incredibly, competitively versus where they can get it, you know, alternatively outside of PACE, I think that's a really the biggest distinction. Yeah, I think so.

I gotta give some I have to give some props to the underwriting team. And like everyone involved in credit, because it's so easy to just say, sounds a little esoteric. No thanks. And it's much harder to dive into the specifics of each deal, which is what we did, right? We had to dive in and really get into the nitty gritty for each deal to determine whether it's truly credit worthy or not.

And we got there because we did the work, no question. Yeah. You gotta be able to expand your mind from the aid of the, you know, the daily rate, the ADR in Orlando, whatever, 160 bucks to 800 bucks in upstate New York and be able to validate it. I think you're spot on. 900 bucks, in New Jersey.

Yeah, sure. If you're wearing like a visor and like you can't see anything at beyond like, it's not going to work. And, you know, that's I think just part of good due diligence and understanding market fundamentals. And yeah, be open to learn.