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FINfacts™ XXIV – No. 107 | February 21, 2018
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| Prime Rate |
 4.50 |
| 1 Month LIBOR |
1.60 |
| 6 Month LIBOR |
 2.13 |
| 5 Yr Swap |
2.81 |
| 10 Yr Swap |
2.97 |
| 5 Yr US Treasury |
2.68 |
| 10 Yr US Treasury |
2.94 |
| 30 Yr US Treasury |
3.15 |
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Rate: Blended 3.88% fixed
Term: 25 and 30 years
Amortization: 27.4 and 33.1 years
LTC: 104%
Guarantee: Non-Recourse
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Transaction Description:
George Smith Partners successfully arranged $43,000,000 in non-recourse construction financing for two large single tenant retail buildings in the Pacific Northwest. The two buildings are part of a power center and will each house a national tenant with strong credit and a long-term lease. The blended cost of capital for the two non-recourse loans was fixed at 3.88%, and comprised over 100% LTC. This allowed leverage on the entire shopping center to reach approximately 80% LTC. The term of the loans are 25 and 30 years with 27.4 and 33.1 year amortizations respectively.
Challenge:
This being a challenging market for retail construction financing, traditional lenders could not reach the necessary leverage to finance the high construction costs of Retail Phase 1. Construction costs in Retail Phase 1 were disproportionately high as the onsite and offsite infrastructure work were built out for all future phases of a greater mixed-use development. The two large national credit tenants took up the majority of Retail Phase 1’s GLA. As major anchors of the center, these two tenants will be paying substantially lower rents than the inline retailers thus dragging the NOI of the property down causing further issues with the project’s yield.
Solution:
Traditional lenders were constrained by Retail Phase 1’s high construction costs and low yields. George Smith Partners realized the best structure for this project was to bifurcate the center and finance the two large national credit tenant buildings separately from the inline space. GSP was able to identify non-traditional bond investors to make highly leveraged, inexpensive, non-recourse construction loans on the two large national credit tenant buildings. By separating the two larger buildings with lower rents from the inline space of Retail Phase 1, a traditional lender could then aggressively lend on the inline space of Retail Phase 1 because of the higher yields from the inline space. This is a result of a smaller concentration of GLA and substantially higher rents.
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Rate: LIBOR + 5.25%
Term: 36 months
Amortization: Interest Only
LTC: 81.5%
Guarantee: Non-Recourse
Prepayment Penalty: 24-Month Minimum Interest, Open Thereafter
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George Smith Partners arranged $24,500,000 of non-recourse, acquisition bridge financing for the purchase and renovation of a 301-unit multifamily property located in the Southwest. The property, which was built in 1971, is comprised of 25 garden-style buildings with mostly 1 and 2-bedroom units. Prior management had done a subpar job in terms of maintenance which required the new buyer to execute a sizeable renovation plan in order to upgrade the units properly: including new cooling towers, infrastructure plumbing and heavy unit renovation. The lender was able to get comfortable with a large capital expenditure budget due to the experience of the new operator and their proven track record in the market and submarket. Sized to 81.5% of total cost, the non-recourse bridge loan floats at 5.25% over 1-Month LIBOR for 3 years.
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Rate: 4.49%, Fixed
Term: Seven years
Amortization: Two years Interest Only; 30-year amortization thereafter
LTV: 70%
Prepayment: Step-Down Prepayment
Guarantee: Non-Recourse
Lender Fee: None
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GSP successfully placed $3,265,000 in permanent debt to take out a construction loan on a newly built mixed-use property located in the heart of St. Louis City. The non-recourse, 75% leverage loan has a fixed coupon of 4.49% for the duration of the seven-year term. The financing provided significant cash out to the borrower and maximized cash flow via two years of interest only payments prior to converting to 30-year amortization. GSP leveraged its lender relationships to achieve the most competitive loan terms for the borrower which included structuring multiple pricing and loan-to-value exceptions.
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George Smith Partners identified a national capital provider offering 1st Trust Deed bridge, mezzanine and preferred equity programs starting at $3,000,000. Covered land and pre-development funds are made available for in-fill locations. In addition to core products, asset types include hospitality, student housing, self-storage and mobile home parks. Sub-debt for secondary and tertiary market developments will be considered once entitled.
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Today’s release of the January Fed minutes (Yellen’s final meeting as Chair) definitely roiled both bond and equity markets. Again, the contrarian nature of the bond markets inverse relationship to economic news is in focus. The Fed statement indicated increased confidence and surety in the economic recovery (as opposed to last year’s “spotty” recovery). The committee increased economic projections from their December meeting. One of the most interesting phrases contained in the statement: “upside risks” referred to increased growth estimates due to a variety of factors including the tax cut and other recent economic reports. So all this good news caused selling in both bond markets (the 10 year T hit a 4 year high of 2.95%) and stock markets. Note that stock traders initially saw the minutes as “dovish” as the statement discounted the possibility of runaway inflation and rallied, but then sold off as they saw the bond market yields spike and realized that the statement may indicate four rate hikes this year instead of the previously expected three hikes. Today’s volatility demonstrated that the return to “normalcy” will be a bumpy road as all asset classes try to find their “market” price/value without extraordinary measures from the world’s Central Banks. Next up: New Chair Powell’s first congressional testimony next week and more closely watched post holiday employment and inflation reports. Our borrowers can take some comfort as spreads have tightened, keeping loan rates relatively low for now. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
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LABJ Commercial Real Estate Awards
Steve Bram and Shahin Yazdi were both nominated for awards last night at the Los Angeles Business Journal Commercial Real Estate Dinner. Steve Bram, Principal/Co-Founder was nominated for, “Broker of the Year” having closed 45 deals totaling $601 Million in 2017. Shahin Yazdi, Principal/Managing Director was nominated for, “Best Multifamily Project” having placed $26,500,000 in proceeds for the refinance of a 136-unit mixed-use multifamily and retail property.
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Constellation Place
10250 Constellation Blvd., Ste. 2700
Los Angeles, CA 90067
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