FINfacts™ XXIV – No. 109 | March 7, 2018

MARKET RATES
Prime Rate 4.50
1 Month LIBOR 1.71
6 Month LIBOR 2.24
5 Yr Swap 2.77
10 Yr Swap 2.90
5 Yr US Treasury 2.65
10 Yr US Treasury 2.88
30 Yr US Treasury 3.15

RECENT TRANSACTIONS
$17,910,000 Non-Recourse Multifamily Acquisition and Renovation Financing

Rate: LIBOR + 4.20%
Term: 36 months
Amortization: Interest Only
LTC: 69%
Guarantee: Non-Recourse
Prepayment Penalty: 18-Month Minimum Interest, Open Thereafter

George Smith Partners arranged $17,910,000 of non-recourse, acquisition bridge financing for the purchase and renovation of a 206-unit multifamily property located in the Southwest. The property, which was built in 1979, is comprised of 17 garden-style buildings with studio, 1 and 2-bedroom units. Although 97% occupied, the property suffered from lower than market rents due to both exterior and interior deferred maintenance. The Sponsor intends to capture higher rents by investing $1,800,000 to upgrade individual apartments and the property’s communal facilities. The lender was able to get comfortable with the capital expenditure budget and the projected rents due to the Sponsor’s proven track record in the submarket. Sized to 69% of total cost, the non-recourse bridge loan floats at 4.20% over 1-Month LIBOR for 3 years.

Advisors

Steve Bram
Managing Director & Principal / GSP Co-Founder
David R. Pascale, Jr.
Senior Vice President

$11,500,000 Non-Recourse Cash-Out Refinance at 3.95% Fixed for Seven Years

Rate: 3.95% Fixed for 7 years; 6 Month LIBOR + 2.25% thereafter
Term: 30 years
Amortization: 30 Years
LTV: 65%
Prepayment Penalty: 5,5,4,4,3,2,1
DCR: 1.15
Guarantee: Non-Recourse
Origination Fees: Par

Transaction Description:
George Smith Partners secured $11,500,000 for the cash out refinance of two stabilized multifamily buildings in West Hollywood containing a total of 61 units. Constructed in the mid-1920s and late 1950s these buildings are situated on some of the most sought after streets in West Hollywood and in close proximity to popular restaurants, bars and entertainment. Fixed at 3.95% for seven years, the non-recourse loans float at 6 month LIBOR + 2.25% for the remaining 23-year term. The non-recourse loans are fully amortizing and have a 5,5,4,4,3,2,1 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 leaves the owner with dozens of units with uncaptured market rents, ultimately affecting the amount of loan proceeds.

Solution:
GSP worked with a Lender who understood the strength of these assets and was able to underwrite to a 1.15x DCR at the actual note rate. Our Capital Provider was amenable to increasing loan proceeds after rate lock based on the results of the appraisal which came in more favorable than the initial proforma. Both properties also had a handful of recent move-ins which gave the Lender comfort in the future upside of the properties as units continue to turn.

Advisors

Matthew Kirisits
Director

$2,180,000 Non-Recourse 100% Cash-Out Refinance on a Multifamily Portfolio

Rate: 4.45% Fixed
Term: Ten Years
Amortization: Three Years Interest Only; 30-Year Amortization Thereafter
LTV: 75%
Prepayment: Step-Down
Guarantee: Non-Recourse
Lender Fee: None

GSP successfully placed $2,180,000 in non-recourse permanent financing for a three property multifamily portfolio in the Pacific Southwest.  The 75% leverage loan carries a low fixed coupon of 4.45% for the duration of its 10-year term.   Cash flow is maximized via three years of interest only payments prior to converting to 30-year amortization.  The loan presented significant challenges including a 100% cash-out requirement, sponsorship with credit issues, the property’s workforce housing tenant base, as well as tax and unpermitted work liens clouding title.  GSP leveraged its strong lender relationships and emphasized the sponsorship’s length of ownership and its real estate investment track record to ultimately overcome these issues.  The loan carries a flexible step-down prepayment penalty offering the ability of early payoff or sale and no lender fee was charged.


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HOT MONEY
Non-Recourse Fixed-Rate Bridge Loans from 5.0%

Acting has a hedge against a rising LIBOR index, George Smith Partners identified a national provider funding fixed rate bridge loans from $5,000,000 to $50,000,000 starting at 5.0%. With LIBOR currently sitting at 1.71%, this nets a spread of less than 330 over the floating index. Asset types include Multifamily, Office, Retail, Industrial, Limited-Service Hotels, Non-Performing Loans, Condominiums and Special Situations. Interest only terms up to 3 years and up to 75% of total capitalization.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Tariffs, Wages and Inflation

Much of last week has been spent reacting to and wondering about the potential tariff announcement expected tomorrow or Friday. The market reaction is vastly out of proportion to the actual effect of the expected tariffs on steel and aluminum. In actuality, steel and aluminum imports make up less than 2% of our GDP. The major volatility is caused by the uncertain “after effects”. Will there be any exemptions? (Today’s indications of exemptions for Canada and Mexico rallied markets this morning.) The “Cohn Groan” selloff was in the wake of the resignation of a key advisor and Wall St. friend. Will this spur a retaliatory measure from the EU and Asia? Will this result in a full blown trade war? Markets don’t like uncertainty. When first announced, the tariffs caused the Treasury ‘s to plummet on a flight to quality. Then, this was followed by a selloff in bonds and rising yields as markets realized that trade wars / tariffs most likely will be inflationary. This week’s announcement of the actual policy will be closely watched, as will the identity of the successor of Gary Cohn.

Now, wage inflation: this Friday’s employment report will be closely watched. One month ago, the January employment report indicated spiking wage inflation and set the stock and bond markets on a roller coaster of volatility. This Friday’s wage inflation number should indicate whether it was an aberration or a trend. The Fed’s Beige book release today contains anecdotal economic data from each of the 12 Federal Reserve Districts. The report indicates tight labor shortages in certain markets. The wage inflation’s have not yet translated into higher prices for consumers. 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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