FINfacts™ XXIV – No. 111 | March 21, 2018

MARKET RATES
Prime Rate 4.50
1 Month LIBOR 1.85
6 Month LIBOR 2.30
5 Yr Swap 2.86
10 Yr Swap 2.95
5 Yr US Treasury 2.71
10 Yr US Treasury 2.91
30 Yr US Treasury 3.12

RECENT TRANSACTIONS
Construction Loans: $33,000,000 (80% LTC) Construction Financing for Mixed-Use Project with Micro Units

Rate: LIBOR + 8.75%
Term: 18 Months with Three, 6-Month Extensions
Amortization: Interest Only
LTC: 80%
LTV: Sized to 70% of As-Complete Value
Guarantee: Non-Recourse

George Smith Partners arranged $33,000,000 of construction financing for a mixed-use project located in the Southwest. The project is set to include 165 micro-unit apartments, 20,000 square feet of retail, and 43,000 square feet of office space. The apartments comprise a majority of the income, but it was very hard to obtain quality comps given the lack of micro-unit inventory in the market. GSP identified a lender that was able to get comfortable with the micro-unit concept even with a lack of comparable properties. The Lender was also comfortable giving the Sponsor credit for an increase in the value of the land since acquisition, eliminating the need for any new cash at closing. The non-recourse loan is sized to 80% of total cost (including the appreciation in the land) and is priced at LIBOR + 8.75%. The financing carries an 18-month term with three, 6-month extensions.

Advisors

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

$8,250,000/ 80% Acquisition Loan for Large Church Office Campus

Rate: 6.75%
LTV: 80%
Term: 10 years
Amortization: 30 years
Guarantee: Recourse to the entity
Prepayment Penalty: 5,4,3,2,1

Transaction Description: George Smith Partners arranged an 80% acquisition financing for a large office building in Monterey Park, California. The sponsor for this transaction was a religious institution who was acquiring the property to serve as its main campus for community service and fundraising events. The religious institution previously operated its community service and fundraising events out of several smaller locations in Orange County, but needed to consolidate into one larger main campus. Fixed for 10 years at 6.75%, the acquisition loan represented 80% of the property’s value and is recourse to an entity. The loan amortizes over 30 years and has a 5,4,3,2,1 prepayment penalty.

Challenges: Conventional lenders could not get comfortable with the transaction because of the niche religious use of the property. The owner-user element further complicated the deal. Many lenders also struggled because the large office building sat vacant for many years and there was no warm body guarantor. The religious institution also required a highly leveraged loan to complete the purchase of the office building.

Solution: George Smith Partners understood the unique aspects of this transaction and ultimately identified a community development lender who was comfortable with both the religious use and the owner-user component of this deal. GSP also structured the transaction to be recourse to the entity, giving the lender further comfort with the deal. GSP was able to push leverage to 80% of the purchase price.


Cash-Out Refinance Loan for Single-Tenant Special Purpose; Fixed for 7 Years at 4.35%

Rate: Fixed at 4.35% for 7 years, then floating a 3 year CMT + 1.75%
Term: 10 years
Amortization: 30 years
Prepayment Penalty: None
LTV: 70% of value
DCR: 1.3x

George Smith Partners secured a cash-out loan for the refinance of a single-tenant, special purpose property in Los Angeles leased to a preschool. The loan is fixed at 4.35% for 7 years and then floats at the 3 year CMT rate + 1.75%. Most lenders required a 25-year amortization for this specialty use property, but the selected lender was able to provide a 30-year amortization. The loan has no prepayment penalty and closed 45 days from application.

Advisors

Matthew Kirisits
Director

SPEAKERS CORNER

Please join Gary Tenzer, Principal/Co-Founder at George Smith Partners, and other top-level industry leaders on Tuesday, March 27, 2018 at Connect Los Angeles at Hotel Indigo, Downtown Los Angeles.  Mr. Tenzer will participate on the 4:45 pm panel, “A Look into Financing LA’s Deals”.  The discussion will be focused on what’s succeeding, what’s changing, and what the financiers see for the year ahead for the LA market. Register here and use the coupon code, “GSP18” for 20% off the ticket price.


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HOT MONEY
Bridge Lender Offering Aggressive Pricing

George Smith Partners is working with a national middle-market portfolio lender funding bridge transactions from $10,000,000 to $75,000,000 on a non-recourse basis. Leverage for multifamily goes up to 75% and pricing starts at LIBOR + 3% for loans sizing to a going-in 3.75% debt yield. The lender will finance Multifamily, Office, Retail, Industrial, Hotel and Student Housing. With the ability to close in 30 days from executed application, three to five year terms are available. Cap strike prices and term lengths are structured to accommodate the business plan and minimize cost. All decisions are discretionary; loans are serviced locally and not part of an underlying bank line or targeted for a CLO execution.

 

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Fed Chair Powell’s Debut Features Expected Rate Hike

The 0.25% Fed Funds rate increase that was announced today was expected. Bond market reaction was mild as the 10 year traded in a tight range between 2.88% and 2.92%, settling at 2.88%. The 2 year increased to 2.30% after hitting a high of 2.34, so the yield curve remains flatter than usual. Powell’s first press conference as Fed Chair was smooth, he did not roil markets as he seemed to have “something for everyone”. He was relatively dovish on this year’s rate increases, the hotly discussed potential 4th increase for 2018 doesn’t seem to be in the cards. It looks like 3 increases in 2018 and 2 in 2019 (up from 2.5 and 1.5 respectively). Note that this puts the “end rate” at about 3.4% which is 0.5% of the Fed’s stated “neutral rate” that neither inhibits or stimulates growth. This means that the Fed is foreseeing a day when they may have to put the brakes on the economy. (The Fed has not taken such a stance in over a decade). This comes as the forecast for GDP growth is up to 2.7% for 2018 (0.2% increase over December’s prediction) and 2.4% for 2019 (0.3% increase). When will inflation finally hit the Fed target rate of 2%? According to Powell and the committee, it will be 2019 (predicted to be 2.1% after hitting 1.9% this year). Interestingly, Powell displayed the traditional independence of Fed Chair from the administration during the presser. He did not go along with the predicted 3.0% GDP that accompanied the pitch for the recent tax reform but indicated that number was “well above all estimates, current estimates of potential long-run growth”. He also took on the subject of tariffs, indicating that regional Fed banks are hearing from concerned business leaders about potential retaliation. 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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