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FINfacts™ XXIV – No. 117 | May 2, 2018
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| Prime Rate |
 4.75 |
| 1 Month LIBOR |
1.91 |
| 6 Month LIBOR |
 2.51 |
| 5 Yr Swap |
2.93 |
| 10 Yr Swap |
3.01 |
| 5 Yr US Treasury |
 2.81
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| 10 Yr US Treasury |
2.98 |
| 30 Yr US Treasury |
3.15 |
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Rate: LIBOR + 3.75%
Term: 36 months with a 12 month extension
Amortization: Interest Only
LTC: 70%
LTV: 62% of as-is value
Guarantee: Recourse
Prepayment Penalty: 1.0% for first 12 months, 0.5% for next 12 months, open thereafter
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George Smith Partners secured $38,750,000 of acquisition financing for the purchase of a retail assemblage in West Hollywood, CA. The Assemblage is currently 100% occupied on month-to-month leases and provides sufficient cash flow to cover all operating and debt service costs. The Sponsor purchased the property with plans to entitle for a mixed-use project which would include condos and a hotel. The lender was able to get comfortable with the entitlement risk due to the Sponsor’s strong track record in the market, the irreplaceable location, and the ability to generate significant additional revenue through already approved billboards. The recourse loan was sized to 62% of as-is LTV, 70% LTC, and is priced at LIBOR + 3.75%. The financing has a 3-year term with a 1-year extension and a stepdown prepayment.
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Rate: Fixed at 4.25% for 5 years then floats at 12MAT + 2.65%
Term: 30 years
Amortization: 30 years
LTV: 70%
Prepayment Penalty: 1.75% for three years then 1%
DCR: 1.15
Guarantee: Non-Recourse
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George Smith Partners secured a $10,066,000 non-recourse cash-out refinance loan for a 71-unit multifamily property in Los Angeles. Although the rental units at the property were fully occupied, the Sponsors were still in the process of implementing RUBS (Ratio Utility Billing System) and establishing storage income. Additionally, some tenants had rent increases that were scheduled to kick in during loan application. GSP sourced a lender that gave the borrower credit for all of the additional income based on signed leases, rather than requiring seasoning. This higher underwritten income resulted in proceeds that were much greater than those offered by the rest of the market. The lender also offered a 60-day rate lock during a time of rapidly rising interest rates.
During due diligence, several challenges were encountered that delayed the closing of the loan. The existing lender required a lengthy notice period in order to process the payoff which further delayed closing until after expiration of the 60-day rate lock. The new lender generously extended the rate lock for two additional weeks and held the rate in the original application.
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Rate: 4.5%
Term: 3 year fixed rate loan
Amortization: 25 years
Loan to Value: 70%
DSCR: 1.25X
Guarantee: Recourse
Prepayment Penalty: None
Lender Fee: Par
TI/LC Reserves: No upfront TI/LC holdbacks and on-going reserves
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George Smith Partners successfully arranged $1,295,000 in cash-out permanent refinance secured by a 10,047 SF, 10-tenant shopping center.
The property is currently 73% occupied with short term leases, and tenants are non-credit local businesses. GSP identified a capital provider that provided a free rate lock at signing of the LOI for 90 days, was comfortable with the local retail market, and the possibility for potential tenants to execute new leases. Fixed for 3 years at 4.5%, the loan amortizes over 25 years with no prepayment penalty.
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George Smith Partners identified a national capital provider offering whole loans/stretch senior, mezzanine and preferred equity programs starting at $10,000,000 in primary and secondary markets. Asset types include office, hospitality, retail and multifamily. With the ability to advance 80% of purchase price for stretch senior debt, pricing starts at LIBOR + 325 with floating rates up to seven years or fixed rate coupons for terms between two and five years. Mezzanine and Preferred Equity will extend to 85% of cost @ LIBOR+700 for ground-up development.
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For years we have been in the world of the “new normal” where ultra-accommodative central bank policies (near zero interest rates, quantitative easing through massive bond purchases, etc.) result in little or no inflation. These metrics would be considered unthinkable in the pre-2008 era, when inflation was a constant and a real threat. During the last few years, the Fed has made it clear that their targets for full employment and normalized price increases were “2 and 4” (2.0% inflation and 4.0% unemployment). So Monday’s report indicating that the Fed’s preferred inflation gage, Personal Consumption Index (PCE), rose 2.0% for the year. Also, this is not an anomaly; the classic elements of a true inflationary environment are in place. Oil prices are firming up and the employment cost index rose 2.7% for the last year (and 0.8% in the first quarter alone). However, first quarter GDP cooled to 2.3% after hovering around 3.0% previously (this may be seasonal as consumers often cool off in the early part of the year). Today’s Fed meeting statement confirmed that inflation should “run near” 2.0% (this is an update from the March statement indicating that inflation would “move up” to 2.0%). The new fascinating term in the statement is “symmetric inflation”, this is being interpreted as a signal that the Fed won’t overreact to inflation at 2.0% and may tolerate a number slightly above that after so many years below. So two more hikes this year and possibly three are a certainty barring some unforeseen market issues. Keeping to the schedule of rate increases, it looks like June and September are the likely dates, with December as a “wild card” potential 4th increase in 2018. Note that the most influential Fed officials have targeted a “neutral rate” of 2.50% (a couple years ago the target neutral rate was 3.25-3.50%, the lower rate indicates officials believe a long period of “secular” low interest rates is appropriate). Last week’s dovish ECB statement putting off the end of their quantitative easing helped lower the 10 year T to 2.96% as 3.02% remains the recent peak (again). Always remember that the Fed controls a short term rate, long term rates are products of supply/demand dynamics and expectations for future inflation and growth. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
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Click here to read the Q1 – 2018 Recap.
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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