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FINfacts™ XXIV – No. 114 | April 11, 2018
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| Prime Rate |
 4.75 |
| 1 Month LIBOR |
 1.89
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| 6 Month LIBOR |
2.46 |
| 5 Yr Swap |
 2.75 |
| 10 Yr Swap |
2.82
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| 5 Yr US Treasury |
2.62
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| 10 Yr US Treasury |
2.79
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| 30 Yr US Treasury |
3.04 |
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Rate: 3.75% + 1-Month LIBOR
Term: 3 Years + 2, 1-Year Extension Options
Amortization: Interest-Only During Initial Term, 30-Year Amortization Schedule During Extension Period
LTC/LTV: 66% of cost/53% as-stabilized value
Prepayment: 15-month spread maintenance
Guarantee: Non-Recourse
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George Smith Partners successfully arranged non-recourse, floating-rate bridge debt on an 85%+ occupied but under performing portfolio of multi-tenant office properties located in Orange County. The portfolio includes four newly acquired office properties and the retiring of a loan encumbering a fifth office property owned by the client. Proceeds of the loan will be used to reposition all of the properties through the implementation of a strategic renovation and leasing program. In addition, the terms of the loan provide the partnership with the autonomy to execute its value-add strategy as well as the flexibility to distribute operating cash flow along with net sales proceeds resulting from the sale of properties thereby maximizing the portfolio-level returns.
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Rate: 4.625%
Term: 10 year fixed rate loan
Amortization: 25 years
LTV: 75%
Prepayment: No prepayment penalty
Guarantee: Recourse
Lender Fee: Par
Rate Lock: Free rate lock at signing of LOI for 90 days
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George Smith Partners secured $13,370,000 in cash-out permanent refinancing for a Class A 108,958 SF two-tenant office building in Salt Lake City, Utah. The purpose of the cash-out refinance is to pay off a maturing loan. With strong sponsorship and an experienced real estate investor, GSP identified a lender who was able to get comfortable with 75% loan to value. The loan was funded prior to receiving SNDA, and there was no holdback or reserves. Fixed for 10 years at 4.625%, the loan amortizes over 25 years with no prepayment penalty.
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Rate: 5.17% Fixed
Term: 10 years
Amortization: Interest Only for 4 Years then 30-Year Amortization Thereafter
LTV: 65%
Prepayment: Annual Stepdown from 10% to 1%
Guarantee: Non-Recourse
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George Smith Partners secured $4,950,000 of permanent financing for two industrial buildings (one single tenant, one two tenants) located in Castaic, California. The 30-foot clear height buildings are located side-by-side and collectively total 57,825 square feet. One of the properties was constructed in 2011, while the other was built in 2016. The buildings are both 100% occupied but all of the tenants have lease terms that expire within the next four years. GSP was able to identify a capital source that would provide a non-recourse, long-term fixed rate loan. The borrower wanted to maximize cash flow which was achieved by taking minimal ongoing reserves, securing a 30-year amortization, and negotiating four years of interest only. The 10-year loan was priced at 5.17% at 65% LTV and offers a stepdown prepayment structure.
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GSP sourced a national capital provider that will provide recourse fixed rate financing to 75% of cost including, tenant improvement, leasing commission, and budgeted capital expenditures on assets with up to 20% vacancy. Fixed rate pricing starts at 4.5% for terms up to 10 years. They offer a 90-day free rate lock, 30-year amortization and no reserves or holdbacks for tenant improvements. Permanent loans along with other opportunities that require structure will be considered. Loan sizes range from $1,000,000 to $15,000,000 for transactions in markets with strong fundamentals. The capital provider has a local decision maker that will fund alternative asset classes that others typically avoid.
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Treasury yields are being buffeted by many factors. The 10 year yield has dropped in the past few days (now 2.79%, under the recent trading range) on geopolitical concerns (possible US strike in Syria, USA/Russia tensions). Other factors indicate longer term increases in treasuries: possible easing of trade tensions between US and China, CPI report indicating an inflation spike, new US budget projections indicating regular trillion dollar deficits, etc. The 2 year Treasury jumped to 2.31%, combined with the lower 10 year yield, we are seeing the flattest yield curve in 10 years. The expectation is for the long end to rise. Today’s Fed Minutes showed officials seeing improving economic growth and higher inflation. A major shift in tone is coming as members are considering changing the description of monetary policy from “accommodative” (it’s been accommodative for a decade!) to “neural” or “restraining”. Note that the Fed’s own projections indicate a future short term rate above the so-called “neutral rate” (the neutral rate is the rate that is neither accommodative or restraining). So they actually foresee a day when Fed policy will be needed to rein in growth. Two more rate hikes are anticipated this year (June and September), with the “wild card” of a potential fourth increase this year possibly in December, futures markets indicate a 25% chance of that. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
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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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Constellation Place
10250 Constellation Blvd., Ste. 2700
Los Angeles, CA 90067
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