FINfacts™ XXIV – No. 108 | February 28, 2018

MARKET RATES
Prime Rate 4.50
1 Month LIBOR 1.66
6 Month LIBOR 2.13
5 Yr Swap 2.77
10 Yr Swap 2.90
5 Yr US Treasury 2.66
10 Yr US Treasury 2.88
30 Yr US Treasury 3.15

RECENT TRANSACTIONS
$15,000,000 Ten-Year Permanent Cash-Out Financing on a Newly Built Inland Empire Truck Terminal with a Single Tenant on a Five-Year Lease

Rate: 4.43% Fixed
Term: 10 years
Amortization: Interest Only for two years then 28-year amortization thereafter
LTV: Up to 70%
Prepayment: Stepdown of 6%, 5%, 4%, 3%, 2%, 1% then Open
Guarantee: 50% Recourse

GSP successfully placed the cash-out, partial-recourse, refinance loan for a 100% leased single-tenant truck terminal industrial facility in Fontana, California. The financing allows the sponsor to retire its construction loan on the asset, lock in a low 4.43% fixed coupon for 10 years, and provide an immediate return of equity. GSP was able to identify a lender that was comfortable with structuring a 10-year loan term despite the tenant’s five-year lease term by underwriting the income associated with the tenant exercising its two five-year extension options. The interest rate is fixed at 4.43% for a ten-year term on an interest only basis for the initial two years then amortizes thereafter.

Advisors

Nick Rogers
Vice President

Construction Loan Southern California: $4,850,000 Partial Return of Equity Construction Take-Out
Jonathan Lee Shahin Yazdi Equity Construction Takeout

Rate: 4.50% Fixed for Five Years; 5 Year CMT thereafter
Term: 10 Years
LTV: 70%
Amortization: 30 Years
TI/LC: None till Year 6
Bank Fee: ½ Point
Prepayment Penalty: None
Guarantee: Recourse

Transaction Description:
Southern California Construction Loan – George Smith Partners placed the take-out of a build-to-suit single-tenant GSA office in a tertiary Southern California market. The ten year term loan matches the investment grade credit lease term. There are no tenant “outs” during the initial term for this gross lease. Fixed for five years at 4.5%, the loan will reset year six at the five-year CMT, floored at the current start rate. Amortized over 30 years and sized to 70% of stabilized value, our Sponsor was able to recoup a portion of his cash equity. There are no TI/LC reserves taken until the beginning of the sixth year and no prepayment penalty at any time.

Challenges:
The application was executed prior to obtaining the Certificate of Occupancy. Additional off-sites mandated by the local municipality added to the development costs and cash equity contribution. State mandated living wage requirements adds an accounting delay that must be signed-off by the State prior to being able to secure lien releases from sub-contractors. Indexes moved against the Borrower, increasing his cost of capital.

Solutions:
Post loan commitment, our portfolio capital provider agreed to increase proceeds by $100,000 to recapitalize our Sponsor for a portion of his cost over-runs. The lender also agreed to a partial set-aside/hold-back until the notice to file mechanics liens had expired. The high construction quality and investment grade credit rated tenant incentivized our portfolio capital provider to hold the applied-for rate through the index run-up.

Advisors

Matthew Kirisits
Director

$4,500,000 85% Loan to Cost Bridge Financing for Buildout of 30-Unit Vacant Apartment Building in Downtown LA

Rate: 7.90%
Term: One Year Term With A One Year Extension Option
Amortization: Interest Only
LTC: 85% Loan to Cost / 70% Loan to Value
Guarantee: Non-Recourse

Transaction Description:
George Smith Partners secured a $4,500,000 private money bridge loan to enable the renovation and buildout of a vacant 30-unit apartment building in the downtown neighborhood of Los Angeles, CA. The building was already in the process of being renovated, but the sponsors needed an additional $1,400,000 to finish renovations of the property. The non-recourse interest-only loan holds a fixed rate of 7.90%

Challenges:
The apartment building had significant structural damage and had become a red tagged building by the City. Subsequently, the building had been placed in REAP (Rent Escrow Account Program). Additionally, renovations were only 65% finished, but the project needed another $1,400,000 for completion as all funds from the prior project financing had been spent. The building had been sitting vacant with zero cash flow for several years.

Solution:
GSP used its experience and relationships to identify a private local lender who could understand the stabilized/sale value of the project and not be turned away by the lack of in place cash flow. This lender was very comfortable with the Downtown Los Angeles market and was the most aggressive with proceeds. Because of the lender’s comfort with the stabilized/sale value, the local market, and the sponsor’s basis in the property, the lender satisfied all requested terms and closed in 5 days.


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HOT MONEY
Floating Rate Non-Recourse Bridge Loans from 4.5% up to 85% LTC

George Smith Partners identified a national capital provider funding LIBOR-based floating rate loans from $5,000,000, starting at 4.5%.  Sub-1.0 cash flow and vacant buildings are considered.  Asset types include Office (and Medical Office), Retail, Mixed Use, Industrial/Distribution, Multifamily and Hospitality properties located in primary and secondary markets nationwide. Interest only amortization and terms up to 5 years on a non-recourse basis to 85% LTV.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Powell’s Debut Stirs Talk of a “Fourth Hike”

Markets are all about expectations and when those expectations change or are modified, volatility ensues. Fed Chair Powell’s first congressional testimony roiled markets and true to the contrarian nature of news relating to rates: “good” news roiled the markets. The new Fed Chair indicated his “personal outlook for the economy has strengthened since December“ and that “fiscal policy has become more stimulative.” The Feds possible response: “further gradual increases” are the preferred method to “promote attainment” of the Fed’s desire to stabilize prices at full employment. With markets previously expecting three hikes this year (March, June, December most likely), the language was enough to create speculation of four hikes this year. The question is, how will Powell react to his market moving remarks? Was that his intention? Will he be more or less direct in future remarks? His predecessors (Bernanke and Yellen) both became more opaque after triggering major volatility (Bernanke “Taper Tantrum” and Yellen’s discussion of rate hike timing). 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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