FINfacts™ XXIV – No. 121 | May 30, 2018

MARKET RATES
Prime Rate 4.75
1 Month LIBOR 1.98
6 Month LIBOR 2.50
5 Yr Swap 2.72
10 Yr Swap 2.82
5 Yr US Treasury 2.60
10 Yr US Treasury 2.79
30 Yr US Treasury 3.03

INTRODUCTION

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RECENT TRANSACTIONS
Los Angeles Construction Loans: Highly Leveraged $12,770,000 Ground Up Koreatown Condo Construction Financing
Los Angeles Construction Loans

Rate: 10.25% Interest Only
Term: 24 Month Construction Loan
LTC: 85%
Guarantee: Non-recourse

Transaction Description: GSP arranged ground-up construction financing for a 29-unit for-sale condominium development in the Koreatown sub-market of Los Angeles. The client was a local general contractor who partnered with an owner who contributed the land. The goal was to obtain highly leveraged, non-recourse construction financing and provide no additional equity. The Sponsor tried to access bank financing on their own before coming to GSP.

Challenge: Non-recourse construction financing is very difficult, especially for first time developers. Lenders view ground-up condo construction as one of the most risky types of financing. In addition, the Koreatown market has seen lots of multifamily developments, but there has been little recent condo construction in this market since the last real estate cycle. Also, the insurance and other last minute expenses increased the overall project cost by $500,000.

Solution: Using it relationships, GSP was able to identify a non-recourse construction lender who would provide highly leveraged construction financing. Because the ownership did not want to bring in new capital, it was also critical for the project to be correctly underwritten and achieve certain loan to cost and loan to value targets. When it was discovered that additional insurance would be needed to protect the contractor and the long-term welfare of the project, the lender agreed to increase the loan by $500,000 a few days before closing to provide capital for unexpected costs. This allowed us to close the loan and start construction.

 


$3,900,000 Acquisition Bridge Loan at Prime + 1.25% for Five Years, Non-Recourse

Rate: Prime + 1.25% for 5 years; 5.50% Floor Rate
Term: 5 years
Amortization: Interest Only 12 months, then 30 YR AM thereafter
Prepayment Penalty: 2,2,0%
LTV: 65%
DCR: 1.20
Guarantee: Non-Recourse
Origination Fees: 0.50%

Transaction Description:
George Smith Partners secured $3,900,000 to facilitate a value add acquisition of a 28-unit multifamily building in Silver Lake. Constructed in the 1950s, this building is located near the heart of Silver Lake which houses many trendy coffee shops, restaurants, bars, and entertainment. Floating at Prime + 1.25% for five years with a 5.50% floor rate, this non-recourse loan has 12 months of interest only payments followed by a 30-year amortization. The loan has a prepayment penalty of 2% for the first two years, then open.

Challenges:
The subject property has many long term residents. The long term residency left the property with dozens of units at below-market rents, ultimately affecting loan proceeds. The property required a significant amount of capital improvements in order to deliver the type of product and aesthetic that the younger tenant base in the immediate area expects for newly renovated units.

Solution:
GSP worked with a Lender who understood the client’s successful track record renovating and adding value to similar projects in the area. The Lender had comfort in the business plan for this project and was able to underwrite to a 1.20x DCR on the exit using proforma rents. The $30M loan provided 65% of the acquisition cost. The Lender was also able to offer non-recourse for this bridge loan.

Advisors

Matthew Kirisits
Director

Commercial Real Estate $2,925,000 Cash-Out Refinance for a Mixed Use Property in Palm Desert at 87% Loan to Cost

Rate: Prime + 0.5%
Term: 3 Years
Amortization: 12 Months Interest Only; 25 Year Amortization Thereafter
LTC / LTV: 87% / 65%
Recourse: Full Recourse
Prepayment Penalty: None
Lender Fee: 0.5%

George Smith Partners arranged a $2,925,000 cash-out refinance loan for a 20,300 square foot mixed-use office over retail property in Palm Desert, California. The deal presented numerous challenges. First, the sponsor only owned the property for three months. Second, a lease was not available for the anchor restaurant space comprising two thirds of the property’s square footage. Third, the sponsor required extremely high leverage and conventional bank interest rates. Finally, the Sponsor needed to close the refinance transaction in 30 days due to a pending acquisition.

To overcome the challenges George Smith Partners sourced a bank lender with which it had a long history of closing aggressive conventional financing with low interest rates. The property’s attractive location in Palm Desert, between the well-known retail thorofare of El Paseo and Highway 111, was emphasized as well as the Sponsor’s successful track record of purchasing notes on distressed properties, foreclosing on those properties and repositioning them.

Sized to an aggressive 87% of purchase price, the loan included a 6-month interest reserve but did not require a holdback for TIs and LCs. The three year mini permanent loan is interest only for the first 12 months followed by 25 year amortization for the remaining two years. The loan floats at Prime plus 0.5% (5.25% today) with no prepayment penalty, and the lender fee was a minimal 0.5%. The loan closed in exactly 30 calendar days from application, which is an extremely fast closing timeframe for a conventional bank.


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HOT MONEY
Nationwide Non-Recourse Bridge Lender Up to 85%, Pricing in the L +300’s

George Smith Partners identified a national portfolio lender funding bridge transactions from $10,000,000 to $50,000,000 on a non-recourse basis. With the ability to advance 85% of purchase price for acquisitions, recapitalizations and business plans that entail value-add, pricing starts at LIBOR + 300. In addition to multi-family, asset classes include: Retail, Hospitality, Medical Office, Industrial, Self-Storage and Senior Housing. Lender is open to prepayment at any time, subject to yield maintenance or minimum interest requirements.

More Hot Money ›

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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