FINfacts™ XXIV – No. 101 | January 10, 2018

MARKET RATES
Prime Rate 4.50
1 Month LIBOR 1.55
6 Month LIBOR 1.87
5 Yr Swap 2.37
10 Yr Swap 2.54
5 Yr US Treasury 2.33
10 Yr US Treasury 2.56
30 Yr US Treasury 2.88

RECENT TRANSACTIONS
$17,800,000 Non-Recourse Bridge Loan to Stabilize a 60,500 sf Retail Shopping Center

Rate: L+600
Term: 18 Months + One 6 Mo. Extension
Amortization: IO
LTC: 75%
LTV: 60%
Prepayment: 6 Mo. Minimum Interest
Guarantee: Non-Recourse

George Smith Partners secured $17,800,000 of non-recourse bridge debt to refinance the Home Ranch Shopping Center, a 60,500 square foot multi-tenant retail shopping center in Yorba Linda, California. Of the total financing, the lender provided $13,700,000 in initial funding and $4,100,000 in future funding to pay for tenant improvements and leasing commissions. Pre-leasing activity increased significantly during due diligence and the Sponsor was able to bring the executed leasing from 56% to 97%. Once stabilized, the business plan will be to refinance into a CMBS takeout. GSP was able to source a Bridge Capital Provider to get comfortable with refinancing out another bridge loan as well as allocating a favorable basis for the Sponsor by adding in costs invested to-date since the initial purchase. Our Sponsor requested a return of equity upon completion of their business plan and preferred a new capital provider who would provide these funds at a lower fixed rate cost.

Advisors

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

$11,800,000 Non-Recourse Cash-Out Refinance of a Multi-Tenant Retail Center

Rate: SWAP + 2.25% (4.62% at closing)
Term: 10 Years
Amortization: Interest Only
LTV: 55%
Guarantee: Non-Recourse

George Smith Partners successfully arranged the $11,800,000 non-recourse cash-out refinance secured by a 49,942 square foot multi-tenant retail center in Tarzana, California. GSP identified a capital provider who was comfortable with the return of equity given the Sponsor’s team and experience. Sized to 55% of appraised value, 8.75% Debt Yield, and a 1.65x Proforma DSCR. The 10-year interest only note is fixed at 2.25% over the LIBOR 10 Year SWAP rate (4.62% at closing).

Advisors

Evan Kinne
Managing Director, GSP; CEO, AXCS Capital

$7,100,000 Acquisition Bridge Loan for Near-Vacant Los Angeles Multifamily Property; 70% of Cost

Rate: Floating at Prime + 0.25% with a floor of 4.75%
Term: 5 years
Amortization: 2 years Interest Only followed by 30 Years
LTC: 70% of as-completed value
Origination Fees: 0.5%

Transaction Description:

GSP secured $7,100,000 for the purchase of a near-vacant 30-unit multifamily property in Los Angeles. The loan is structured as initial funding of $5,970,000 with additional holdbacks of $1,030,000 in reserves. The 5-year term loan floats at Prime + 0.25% with a floor of 4.75% and has two years of interest only payments before amortizing over 30 years. The purchaser is planning an 18-month renovation of the property that includes the addition of eight new units.

Challenges:

At the time the purchase and sale agreement was signed, the property had only two units rented. Although the sponsor had extensive experience with ground-up construction of warehouse space, they had only completed one renovation of a multifamily property. The sponsor’s proforma rents were at a premium to unrenovated units in the submarket, causing some lenders to stress their underwritten rents. The property was also mistakenly flagged under the LA Soft Story Retrofit ordinance even though the City had already issued a Certificate of Compliance.

Solution:

GSP was able to source a lender comfortable with the limited cash flow during the renovation period by emphasizing the strength of the submarket and the enormous value-add potential of the property. Rental comps for newly renovated units in the area were provided along with the borrower’s very large per-unit renovation budget. This data showed that the borrower’s rent projections are well supported by the market. A detailed budget and architectural plans were effective at securing comfort with the borrower’s capability to meet the business plan. GSP contacted the City and secured the Certificate of Compliance, which led to the removal from the Soft Story list. The acquisition loan closed in 40 days from application.

Advisors

Matthew Kirisits
Director

SPEAKERS CORNER

Gary Mozer, Principal/Co-Founder, Bryan Shaffer, Principal/Director and Malcolm Davies, Principal/Director will be speaking at the IMN Winter Forum on January 18th at the Montage Resort & Spa in Laguna Beach, California.  Gary’s panel, “High Yield Bridge/Mezzanine Loan Investment 2018” will be at 11:45 am – Track A.  Bryan’s panel, “Comparing Alternative Sources of CRE Finance for Small-Cap Deals & New/Non-Established Borrowers” will be at 12:30 pm – Track A.  Malcolm’s panel, “Hotels 2018” will be at 5:00 pm – Track B. We look forward to connecting with you at the event!


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HOT MONEY
CMBS and B Piece Buyer in One

To further reduce uncertainty of execution, an active CMBS lender is advancing up to 75% of value with plans to hold the B Piece on their balance sheet to maintain certainty of execution. Debt Yields as low as a 7.5% for non-recourse fixed rate requests will be underwritten. Transactions range from $5,000,000 to $100,000,000 and term can be up to 10 years.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Asian News and Rumors Spark Bond Market Selloff, Yields Threaten Key Technicals, Auction Stabilizes Market

First off(rumors and expectations): The selloff started with the Bank of Japan’s unexpected move to reduce their purchases of their bonds rekindled the “taking away the punch bowl” narrative as the world’s central banks wind down the post-crash stimulus (as we approach the 10 year anniversary of the Lehman bankruptcy). As usual, the market reaction was magnified by the unexpectedness of the announcement.  The US Fed stopped buying bonds long ago and the ECB has assured markets that their wind down will be well telegraphed.  So the mini “taper tantrum” gained steam as Bloomberg reported that China is considering slowing down or even stopping their purchases of US Treasuries.  Note that China is the largest owner of US debt.  The fact that the report was not refuted by officials or insiders gave it legitimacy and the sell off was on.  The 10 year T hit 2.60% today, up 15 bps since last Friday.  The China stance is complicated and multi-faceted: (1)  China is the largest holder of Treasuries (approx. $1.2 Trillion) and illiquidity in the market can devalue their portfolio; (2) Major trade decisions on aluminum, steel and other commodities by the US are pending, this could be a “warning shot” against potential tariffs; (3) Destabilizing the US Economy would not help China’s export business, increasing interest rates lessens US consumer buying power.  As yields rose, markets pondered the “unthinkable”: China selling Treasuries as our Fed trims its balance sheet (also selling Treasuries) as tax cuts and growing entitlement obligations balloon the deficit and increase supply into a marketplace of dwindling demand.  The 10 year yield fell short of its key technical, the March 2017 recent high of 2.63%.  Then an actual auction calmed markets (for now) as $20 billion of 10 year notes were well received as buyers were attracted to the higher yields, the 10 year dropped to 2.55%.  Now, all eyes are on Friday’s CPI reports for signs of inflation. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

More Perspectives ›

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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