FINfacts™ XXIV – No. 2 | January 13, 2016

MARKET RATES
Prime Rate 3.50%
11th Dist COFI 0.64%
1 Month LIBOR 0.42%
3 Month LIBOR 0.62%
6 Month LIBOR 0.85%
5 Yr Swap 1.48%
10 Yr Swap 1.96%
5 Yr US Treasury 1.53%
10 Yr US Treasury 2.09%
30 Yr US Treasury 2.88%
12-Mat 0.32%

RECENT TRANSACTIONS
$27,100,000 Apartment Portfolio Refinance in Baldwin Hills, California

Rate: 4.06%
Term: 7 Years
Amortization: 30 Years
LTV: 80%
Recourse: No
Prepayment: Yield Maintenance

Transaction Description: George Smith Partners successfully closed a $27,100,000, 10-year fixed-rate loan on 11 apartment buildings in Baldwin Hills, California. Several of the assets were too small to finance individually so all properties were cross-collateralized in order to achieve the best pricing across all properties. Baldwin Hills is an improving neighborhood with rapidly increasing values which allowed the lender to maximize the loan amount. The lender was able to push proceeds to provide a return of equity to the Sponsors and pay for future seismic retrofits. The 4.06% coupon was locked at application for 60 days at no cost. The non-recourse loan is fixed for seven years with a 30 year amortization.

Advisors

Steve Bram
Managing Director & Principal / GSP Co-Founder
Allison Higgins
Senior Vice President

$9,500,000 Permanent Refinance of 34-Unit Multifamily w/5 Years Interest Only @ 3.158%

Rate: 3.158%
Lender Fee: Par
Term: 7 Years
Amort: 5 Years IO
Recourse: No
LTV: 55.0%

Transaction Description: George Smith Partners successfully placed the permanent refinance for a 34-unit Class A multi-family structure in the Westwood neighborhood of Los Angeles, south of Santa Monica Boulevard. The Sponsor constructed the property in 2006, and still had time prior to his existing loan opening to prepayment without penalty. The non-recourse loan was locked at application for 60 days at no cost or spread increase. Fixed for seven years at 3.158%, the first five years of the loan are interest only.

Challenge: Our Sponsor believed that interest rates were historically low and would climb prior to his loan opening to pre-payment without penalty. The Borrower wanted to understand at what point the prepayment/rate equation would be most beneficial to lock in current rates.

Solution: GSP produced an analysis that proposed current and future interest rate scenarios to determine potential costs of refinancing versus accepting interest rate risk or incurring the additional cost of an extended rate lock. An inflection point was found to exist by securing an early rate lock that allowed the prepayment to decrease over the two months required to complete the loan due diligence. The capital provider would have extended their rate lock beyond the 60 days (up to 9 months) at an additional cost of 3 basis points in spread. Our Sponsor benefited by locking in a low rate at application while his prepayment penalty amortized down during processing.


$2,283,000 Acquisition & Reposition of 22-Unit Infill Apartments to 75% of Cost

Rate: Prime + 1.0% w/4.5% Floor
LTC: 75%
Term: 2 Years
Amort: 30 Years
Lender Fee: 0.5%

Transaction Description: George Smith Partners successfully placed an acquisition bridge loan for the rehabilitation and renovation of 22 multifamily rental units in Koreatown, Los Angeles. Funding included $800,000 of future capital improvements for the planned rehab of units. Sized to future stabilized value, this loan allows for an increase in debt coverage ratios and debt yields as the property continues to improve financially. Floating over Prime plus 1.0%, the two year loan was sized to 75% of total capitalization.

 


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HOT MONEY
National Non-Bank Deep Value-Add

George Smith Partners is placing significant value-add transitional loans with a national debt fund advancing to 65% of total capitalization on a non-recourse basis. Select ground-up transactions and condo-inventory pools will be underwritten to 70% of value. Requests from $10,000,000 to $50,000,000 are priced from LIBOR plus 450 to 700 based on risk and leverage. Future fundings are advanced through draw requests and do not incur negative arbitrage from recordation. Two to three year terms are typical and carry extension options.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Treasury Yields Drop

Today’s new 10 year bond issue auction of $21 billion went very well, the 10 year yield dropped to 2.04% today before settling at about 2.09%. Long Treasury yields are being pushed lower by markets regardless of Fed actions. The main factors include: (1) Fed Beige Book release today indicating flat wage growth (declaring the uptick in October and November as “not sustainable”), weakening manufacturing due to the strong dollar’s negative impact on demand, and energy sector struggling. Note that real wage inflation (a closely watched inflation gauge and stated Fed goal) was only reported in the New York and San Francisco districts, with the remaining 10 districts reporting virtually no wage growth; (2) Oil prices continue their dramatic fall on weakening global demand, briefly falling below $30 per barrel today, the lowest since 2004. Not only is this a harbinger of global demand, but this contributes to the “risk off” trade as the energy sector (which is a huge player in the bond markets) will be seeing more defaults if prices don’t stabilize soon; (3) China currency and stock market volatility, which is roiling markets as confidence erodes in the Chinese authorities’ ability to “control” the markets; (4) Other central banks (the latest being Canada) continuing to lower their borrowing rates. All of this is contributing to a consensus that the Fed schedule of rate increases will be slower than announced.    stay tuned    David R. Pascale, Jr.

More Perspectives ›

Kent Hikaru Bedolla

Congratulations to Kristen and Loren Bedolla! On Thursday, December 10th, they welcomed their first child, Kent Hikaru Bedolla at 7 lbs. 10 oz. Both baby and mom are doing great. It’s been a month and Kent has already asked to borrow the car on Saturday night. George Smith Partners and friends wish The Bedolla Family health and happiness during this joyful time.

 

George Smith Partners’ Paid Analyst Rotational Program

GSP is now accepting applications for our full time Spring 2016 Rotational Analyst Program. Entry-level analysts will rotate through various teams and be exposed to all facets of commercial real estate investment banking. This competitive rotational program lasts 20 weeks where analysts will be evaluated for the possibility of a permanent position at the firm. Please forward cover letter and resumes to resume@gspartners.com by January 27th, 2016.


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