FINfacts™ XXIV – No. 100 | January 3, 2018
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Prime Rate |
4.50 |
1 Month LIBOR |
1.56
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6 Month LIBOR |
1.84 |
5 Yr Swap |
2.28
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10 Yr Swap |
2.43
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5 Yr US Treasury |
2.25 |
10 Yr US Treasury |
2.45
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30 Yr US Treasury |
2.79
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Rate: 3.70% & 3.90% Fixed for 7 years; 6 Month LIBOR + 2.25% thereafter
Term: 30 years
Amortization: 30 Years
Prepayment Penalty: 5,4,3,2,1
LTV: 65%
DCR: 1.15
Guarantee: Non-Recourse
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Transaction Description:
George Smith Partners secured $35,470,000 for the cash out refinance of a stabilized multifamily portfolio containing 187 units in West Hollywood. Fixed at 3.70% & 3.90% for seven years, the 30 year fully amortizing non-recourse loans float at 6 month LIBOR + 2.25% for the remaining 23-year term and have a 5,4,3,2,1 step down prepayment penalty.
Challenges:
Many of the buildings have long term residents who have lived at the properties for over a decade. The long term residency coupled with stringent West Hollywood rent control constraints leaves the owner with uncaptured market rents, which ultimately affects the amount of loan proceeds.
Solution:
GSP sourced a lender who understood the strength of these assets and was able to underwrite to a 1.15x DCR at the actual note rate. The capital provider was amenable to increasing loan proceeds after rate lock and with a handful of recent move-ins, they became comfortable in the future upside of the portfolio as units continue to turn.
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Rate: 4.84% Fixed
Term: 10 Years
Amortization: 30 Years
LTV: 73.5%
Guarantee: Recourse
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George Smith Partners secured a $3,800,000 permanent loan for the acquisition of a single tenant Tractor Supply Company located in Colorado. The 22,300 square foot building was constructed earlier this year and the tenant has a new 15-year lease. GSP was able to identify a capital source that does not require a reserve structure, which helped to increase the cash flow and bolster loan proceeds. Sized to 73.5% of purchase, the recourse loan carries a 4.84% fixed rate for a 10-year term and amortizes over 30 years. The transaction funded 45 days from application.
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Rate: Prime + 0.75%
Term: 20 Month Floating Rate Bridge plus 5 Year Fixed Rate Permanent Loan Extension Option
Amortization: IO for initial term / 25 year am for perm loan
LTV: 61%
LTC: 72%
Guarantee: Recourse
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George Smith Partners arranged a $3,565,000 refinance for the conversion of a spec creative office property in Santa Monica. Sized to 72% of total project cost, including 100% of future funding for the conversion to creative office, the interest-only loan is structured with an interest reserve. Fixed at 5% for 5 years, the loan offers an extension option once the property is stabilized.
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George Smith Partners identified an institutional capital provider funding subordinate debt behind existing CMBS debt for all property types nationwide. The sub-debt lender will fund fully stabilized assets up to 85% of cost/value with various pay structures. Terms are up to ten years and pricing starts at 8% for a current pay and requires accrual or equity participation. All structures are within full compliance of the existing senior debt.
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Happy New Year to all as the macro-economy is roaring into the New Year. Retail sales over the Holidays were solid, both e-commerce and in-store. Stock markets are still hitting new highs with very little volatility. The 10 year Treasury continues to trade in a tight range, after spiking over 2.50%, it is back down in the low 2.40’s this week. Tax Bill Effects: The bill contains positive provisions for REIT’s and other owners of commercial real estate due to favorable treatment of “pass through” income. The residential market effects may be more “checkered” with limits on mortgage interest and state tax deductions may negatively impact high end housing markets in California, New York, New Jersey and other high tax states. Increased purchasing power among regular consumers is complicated by uncertainty over corporation passing savings/bonuses to workers (some major companies have started) and the sunset provision for many of the individual cuts set for 2025, setting up a potential “fiscal cliff” for future congresses to deal with (or not). Interest rates: Higher rates are expected as increased deficits will necessitate a bigger supply of Treasuries. Today’s Fed Minutes release from last month’s meeting showed classic policymaker dilemma over the tax bill:tax policy does not dictate corporate or individual behaviors. For example: Will corporations increase investment in capital spending, which can increase economic capacity without spurring inflation? Or will they use it to execute financial investments such as stock buy backs or debt reduction? This could spur inflation. The Fed’s stated course is three rate increases in 2018 and their projections indicate, that will be sufficient. 2018 Government Action: Dodd Frank “adjustments” are on tap, including the elimination of stress tests for many regional and community banks, this may spur lending among these middle market players. Also, various proposals for Fannie Mae and Freddie Mac “reform” are being discussed, but the main stumbling block is the lack of a pure private market in mortgage bonds, even 10 years after the crisis. It is doubtful that Congress will want to increase uncertainty in that market so quickly on the heels of the tax bill. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
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If you have an inquiry regarding George Smith Partners’ commercial real estate financing, please contact your GSP representative or Todd August, Chief Operating Officer (310) 867-2995 or TAugust@GSPartners.com
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Constellation Place 10250 Constellation Blvd., Ste. 2700 Los Angeles, CA 90067
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