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Finfact XXIV- No. 71 | June 7, 2017
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| Prime Rate |
 4.00 |
| 1 Month LIBOR |
 1.09 |
| 6 Month LIBOR |
1.41 |
| 5 Yr Swap |
 1.82
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| 10 Yr Swap |
2.14 |
| 5 Yr US Treasury |
1.74
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| 10 Yr US Treasury |
2.17
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| 30 Yr US Treasury |
2.81
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Rate: 4.59%, Fixed
Term: 10 years
Amortization: 5 Years Interest Only; 30 Year Amortization thereafter
Prepayment: Defeasance
Guaranty: Non-Recourse
Lender Fee: None
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George Smith Partners successfully placed $11,500,000 of non-recourse, ten-year fixed rate first mortgage debt for the refinance of a 60,000 square foot multi-tenant retail property anchored by an investment grade rated discount retailer and shadow anchored by a successful regional ethnic grocer. The property was 99% leased at loan closing, but only 79% occupied as three new tenants were in a four month build out and free rent period. GSP worked with the lender to avoid a capitalized hold back of over $2,000,000 as the new tenants’ income was included in the underwritten income, but was not being collected yet. Instead GSP negotiated a structured a nominal six month rent and expense reserve held back at closing and released pro rata to Sponsor as the new tenants open for business.
The lender became comfortable with this structure due to a combination of positive factors including a having a highly experienced sponsor, strong shadow anchor sales, below market rent for the anchor tenant with fixed low renewal rates, and a rent roll with over 50% investment grade rated tenancy. The 4.59% fixed coupon loan is sized to an 8.0% debt yield and 1.25x debt coverage ratio and the 10-year term is interest only for the first five years, with a 30-year amortization schedule thereafter.
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Rate: 4.74%
Amortization: 3 Years Interest Only: 30 Year Amortization thereafter
LTV: 75%
Term: 12 Years
Prepayment Penalty: Yield Maintenance for 11 Years 6 Months
Guaranty: Non-Recourse
Lender Fee: Par
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George Smith Partners secured $10,500,000 non-recourse acquisition permanent financing to purchase a 216-unit, 1970s vintage multifamily property in Jacksonville, FL. The six building property sits on a 12-acre site and is well located near the Oakleaf Town Center. Amenities include swimming pool, fitness center, and a playground. The sponsor acquired the property to take advantage of an opportunity to upgrade units and increase rents. Proceeds included $402,000 for interior unit improvements, exterior improvements, and exterior deferred maintenance. GSP sourced a Capital Provider who underwrote pro forma expenses by recognizing the incoming property management company’s track record for efficiently managing similar properties in the market.
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Rate: 4.25% Fixed
Term: 5 years
Amortization: 15 years
Guaranty: Full Recourse
Lender Fee: 0.30%
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George Smith Partners arranged a $3,700,000 loan for a non-credit tenant that subleases a significant portion of the space. The tenant is a middle market grocery chain recently acquired by a hedge fund. The formerly public company is now private with no financials available. The 31,000 square foot grocery store tenant subleases 8,000 square feet to an office supply store. The challenge was finding a lender that could be comfortable with 8 years left on the lease (and the co-terminus sublease) in a secondary location with no continuing sales available. GSP sourced a lender with local expertise that got comfortable with the historic sales that were reported prior to the tenant’s acquisition. The short amortization and recourse were also risk mitigates.
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GSP has sourced a capital provider that can provide non-recourse loans to 90% of cost including interest reserve, tenant improvement, leasing commission, and capital expenditures. The loan will feature a current pay of 6.50% to 7.50% and an equity participation at the end of the five-year term. The minimum loan size will be $20,000,000 and some interest only is available.
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The 10 year T hit a 2017 low of 2.13% this week, before bouncing back up to 2.17% today. Several global factors are contributing to lower bond yields including: (1) Middle East diplomatic crisis as other Arab states are attempting to isolate Qatar. As Qatar is a major oil producer, the involved countries are OPEC members, and other countries are starting to take sides (Turkey sending troops, etc). The uncertainty and potential oil price concerns contributed to a flight to quality; (2) China is buying Treasuries again. The world’s largest holder was selling during 2016 in order to bolster the Yuan. With the currency now stabilizing, China can resume its purchases; (3) “Brexit” is back, the UK election is tightening, markets prefer Theresa May’s conservative party to hold on to power in order to assure an orderly exit from the European Union. A new leader may result in a chaotic exit; (4) Back home: Former FBI Director Comey’s scheduled testimony for tomorrow was also a “fear factor” until the advance release of his opening statement lacked any major bombshells. On the economic front, last week’s employment report was lacking in job creation and wage inflation, further dampening growth/inflation expectations. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners.
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Constellation Place
10250 Constellation Blvd., Ste. 2700
Los Angeles, CA 90067
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