FINfacts™ XXIV – No. 112 | March 28, 2018

MARKET RATES
Prime Rate 4.75
1 Month LIBOR 1.88
6 Month LIBOR 2.45
5 Yr Swap 2.72
10 Yr Swap 2.80
5 Yr US Treasury 2.59
10 Yr US Treasury 2.78
30 Yr US Treasury 3.03

RECENT TRANSACTIONS
$17,925,000 Refinance; 62%-Occupied Sacramento-Area Retail Center; Below Breakeven Going-In Cash Flow

Rate: 30-Day LIBOR + 5.15%
Term: 36-month term
Amortization: Interest only
LTC/LTV: 75% of cost, 70% as-stable value
Prepayment: 15-month spread maintenance
Guarantee: Non-Recourse
Lender Fee: 1%

GSP successfully placed $17,925,000 in non-recourse, floating-rate bridge debt on a 62%-occupied, 1960’s vintage, Sacramento-area multi-tenant retail property. Over 55% of loan proceeds were future funded due to significant repositioning of the property, which includes the construction of new retail pads and re-tenanting of a former Kmart suite with two national discount tenants. GSP identified a lender that provided a 75% loan-to-cost bridge loan including a significant earn-out upon stabilization and accepted an entity as carve-out guarantor in lieu of a warm body. The lender structured an interest reserve due to below breakeven going-in cash flow.

The loan priced at 30-Day LIBOR plus 5.15%. Interest is not paid on the unfunded proceeds until drawn.

Advisors

Nick Rogers
Vice President

$7,500,000 Cash-Out Refinance of Two Industrial Properties

Rate: 7.9%
Term: 12 months
Amortization: Interest Only
LTV: 50%
Prepayment Penalty: None

George Smith Partners secured financing totaling $7,500,000 on two separate industrial properties in Los Angeles. The properties are occupied by a major domestic furniture manufacturer. The loans provided a return of equity to the borrower. The lender did not require an appraisal, but was able to use market comparables to substantiate the value of the properties. GSP provided extensive market data showing recent transactions of similar properties in order to further support the lender’s value. The lender was ready to close within two weeks of application.

Advisors

Matthew Kirisits
Director

$4,200,000 Cash-Out Refinance for Two Single Family Fix and Flip Properties to 84% of Purchase

Rate: 7.50% Fixed rate
Term: 6-month term
LTP: 84%
LTC: 80%
Guarantee: Recourse

George Smith Partners arranged a $4,200,000 quick-close cash-out refinance on two coastal Orange County single family residences. The deal posed numerous challenges. First, the sponsor, who had closed all cash, approached GSP with an extremely tight closing time frame due to the need to redeploy refinance proceeds into a pending acquisition. Second, the sponsor would not agree to a holdback for renovation proceeds as he did not want to deal with the administratively burdensome draw request process. Third, as most of the LLC members were not willing to sign recourse on the loan, the sponsor could only offer a guarantor that owned a 5% interest in the borrowing entity. To solve these challenges, GSP identified a non-bank lender with a long history of providing quick-close bridge execution and was familiar with the location. Sized to 84% of purchase and 80% of cost with no hold back requirement for interest reserve or capital expenditures, the loan carries a 6-month term, interest only payments at a 7.50% fixed rate and no prepayment penalty. The loan also includes two 3 month extensions.


Expert Witness Services

About 30 years ago, as a well-known real estate finance expert, George Smith was asked by an attorney to serve as an expert witness in a real estate litigation; this lead to several more assignments in the next few years. George asked his young associate and future Partner of GSP, Gary Tenzer, to help him prepare for his testimony. Over time, George decided not to take any new assignments and turned them all over to Gary.

Gary enjoys arranging financing for his clients and the intellectual challenge and pressures of being an expert witness in complex commercial real estate related litigation matters. Over the past 25 years Gary has developed a national reputation as an expert witness in real estate finance litigation.

Gary has served as an expert witness in over 300 litigation matters and testified in over 100 trials in both Federal and State courts, nationwide. He has worked as an expert with some of the most well-known law firms in the country and on significant litigation matters including serving as the interest rate expert on behalf of General Growth Properties (“GGP”) in their multi-property bankruptcy in 2009, reportedly the largest real estate Chapter 11 in history. Other well-known litigation clients have included Carmel Partners, Hard Rock Hotels, Simon Property Company and financial institutions such as J. P. Morgan, US Bancorp and Wells Fargo Bank. In addition to bankruptcy testimony, Gary has testified on disputes between borrowers and lenders, buyers and sellers, principals and investors, financial feasibility as well as a myriad of other real estate transactional and finance issues.

In future editions of “FINFacts”, we will include some feature articles from Gary sharing his insights into real estate litigation, from a non-lawyer’s point of view.

For further information about Gary Tenzer’s expert witness practice and to review his Curriculum Vitae, see the following link: http://gspartners.com/services/litigation-support/

Advisors

Gary M. Tenzer
Managing Director & Principal / GSP Co-Founder

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HOT MONEY
High Leverage Non-Recourse Mezzanine and Construction Financing

George Smith Partners is arranging mezzanine loans from $10,000,000 and construction loans from $30,000,000 on a non-recourse basis. The lender can finance all product types with rates for construction loans starting at LIBOR plus 575 with leverage up to 85% of cost.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Volatility is the Newest Normal, LIBOR Run Up

Treasuries rallied this week, with the 10 year yield dropping to a level not seen since early February. The flight to quality rally is connected to the sell off in equities as markets whipsawed up and down on the possibilities of a trade war with China (markets rallied on Monday on the perception that the tariffs are resulting in negotiations, but the ultimate uncertainty of the outcome and effects will continue to weigh on markets until more issues are resolved) and tech headlines (Facebook, Tesla issues). Tesla’s debt is getting attention as spreads are blowing out on their corporate issuance. Overall credit spreads have widened slightly in the last few months. Combined with short term indexes rising (LIBOR, Prime, Fed Funds), the cost of capital to corporations is increasing. Speaking of the indices, 3 month LIBOR is up 61 bps this year, a period where the Fed Funds rate only increased 25 bps. The 3 month LIBOR is the commonly used benchmark for trillions of dollars of corporate debt. LIBOR’s “disconnect” from the Fed can indicate stress in the credit markets as in 2007-2008. But the culprit here may be US fiscal policy. Short term treasury bond supply is up due to the US budget dynamics and tax cuts. Also, corporations are repatriating cash or using cash for stock bybacks and other uses. That cash was often held in short term instruments. There is less demand and increased supply and that may be driving LIBOR’s rise. 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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