FINfacts™ XXIV – No. 124 | June 20, 2018

MARKET RATES
Prime Rate 5.00
1 Month LIBOR 2.09
6 Month LIBOR 2.50
5 Yr Swap 2.94
10 Yr Swap 3.00
5 Yr US Treasury 2.80
10 Yr US Treasury 2.94
30 Yr US Treasury 3.05

RECENT TRANSACTIONS
Multifamily Townhome Project Refinancing: $157,500,000 Cash-Out Refinance of a 752-Unit Multifamily Property; 10-Years Interest Only at 4.29%

Rate: 4.29% Fixed
LTV: 65%
Term: 120 months
Amortization: Interest Only
Guarantee: Non-Recourse
Prepayment Penalty: Yield Maintenance

Transaction Description:
George Smith Partners arranged the refinance of Colony Townhomes, a 752-unit multifamily property located in Canyon County, California. The refinance proceeds replaced a HUD loan, also previously arranged by GSP, with a remaining term of 23 years and with pre-payment penalties. Sized to 65% of value, the non-recourse, 10-year, interest only loan is fixed at 4.29%.

Challenge:
The Sponsor wanted to seize the opportunity to cash out significant appreciated equity, while locking in low interest rates in a rising interest rate environment. The early refinance meant that the Sponsor would have to incur the pre-payment penalty. The recent fluctuations in the 10-year Treasury spurred additional urgency in the transaction.

Solution:
The Sponsor’s original HUD loan was priced at 3.75% with over 20 years remaining. Through analysis, GSP determined that the interest rate savings for a new 10-year loan would easily offset the early prepayment costs of the existing loan, as well as provide for the major cash out the Sponsor was hoping to achieve. Once the Sponsor decided to proceed, Rate Lock was accomplished in 14 business days and the loan closed 21 days later.

While an early refinance does not make sense in every situation, frequently, the opportunity to liberate trapped equity as well as lock in long term fixed rates ahead of expected further rate increases offsets the prepayment penalty cost incurred by refinancing prior to the open prepayment window.

Advisors

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

Apartment Complex Bridge Financing: Quick Close Reverse 1031 Exchange Acquisition Financing For Apartment Complex Located Outside Los Angeles

Rate: 7.5% Fixed
Term: 6 Months
Amortization: Full Term Interest Only
LTV: 65%
Prepayment Penalty: None
Guarantee: Non-Recourse

George Smith Partners arranged the acquisition bridge financing for an apartment complex that served as the up-leg of a reverse 1031 exchange. The property was located in Cudahy, CA, just outside of Los Angeles, and was operating with below-market rents. The complex nature of a reverse 1031 exchange required GSP to find and tailor a loan that complied with the specific rules and regulations of the reverse exchange. For example, as the 1031 accommodator is taking title to the property until the full exchange is completed, a non-recourse loan is required. With this in mind, it was crucial for GSP to work with a lender comfortable with this type of transaction and exchange. GSP ultimately identified a lender who could close in a timely fashion on the acquisition and had ample experience in financing reverse 1031 transactions. Additionally, GSP worked with the lender to get rid of any prepayment penalty, saving the borrower capital during the down-leg of the reserve 1031 exchange. The non-recourse loan holds a fixed rate of 7.5% and is interest only for the term of the loan. The loan was sized to 65% of purchase price.


Refinance for 6-Unit Multi-Family Property in Santa Monica, CA

Rate: 4.80% fixed for 5-years
Term: 30 Years
Amortization: 30 Years
Recourse: Full Recourse
Prepayment Penalty: 3/2/1
Lender Fee: Par

George Smith Partners arranged permanent financing for a 6-unit multi-family property in Santa Monica, CA. Despite the property’s spectacular location, footsteps from Santa Monica College, the property was operating well below market rents. GSP identified a lender that was willing to rely solely on the Sponsors strong global cash flow, perfect credit history and experience managing and owning multi-family and commercial properties to size the loan down to a 1.01x DCR. Most conventional lenders require a minimum 1.15x DCR on their multi-family loans and could not reach the loan dollars needed for this transaction. Using its long standing relationship with the lender, George Smith Partners mitigated the below market rents by stressing the strength and experience of the Sponsor with a portfolio bank and obtained fixed-rate leverage at maximum loan proceeds.


SPEAKERS CORNER

Please join Bryan Shaffer, Principal/Managing Director of George Smith Partners for the InterFace Denver Multifamily Conference on Thursday, June 28th at the Four Seasons Hotel. The event will be focused on who is buying, selling, building and financing multifamily properties in the Denver area. If you are interested in attending, please contact Dana Light at dlight@gspartners.com.  For more information about the conference, please click here.


Picture
HOT MONEY
Multifamily and Senior Housing Non-Recourse Bridge Financing Libor + 1.75%

George Smith Partners is working with a national balance sheet lender funding bridge/reposition transactions from $5,000,000 on a non-recourse basis. Rates start at Libor + 1.75 % for terms up to 1 year up to 3 years. Leverage for apartments and senior housing up to 75% of purchase price. The lender will fund sub-break-even and to a 125 DCR threshold for lighter construction for better pricing. Fees are generally 100 to 150 bps.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Treasury Yields Trading in Tight Range, ECB’s On Schedule “Shadowing” US Fed Moves

Markets are in the classic conundrum: “on one hand – but, on the other hand -.” As usual it’s a case of whether to focus on today’s good news (US economy at full employment and expected to report 2nd Quarter GDP at an eye popping 4.9%) or what may happen in the future (an all out trade war between US and China). The trade war jitters are feeding a flight to quality treasury rally. The full employment, productivity and GDP numbers combined with a hawkish rate-raising speech by Fed Chair Powell in Europe should have spiked yields well above 3.00%, but the 10 year is sitting at 2.93% after dipping below 2.90% this week. Speaking of Europe, ECB Chair Draghi shed some light on the winding down of ultra accommodative stimulus policy by the ECB. He indicated the ECB will stop its bond buying program this year and won’t start raising rates until summer 2019. This is noteworthy as it signals another “end of an era” of mega stimulus stemming from the Great Recession and subsequent Eurozone crisis of 2010-2012. This is reminiscent of the US Fed, which stopped bond purchases in Oct 2014 and started raising rates in Dec 2015. Note that the ECB started their bond buying in 2015, years after the US Fed had implemented Quantitative Easing. So now, hopefully Europe’s economy can soon stand on its own in a “normal” rate environment and without central banks propping up bond prices and “artificially” compressing spreads. It’s all uncharted territory as the entire era is unprecedented. 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


WWW.GSPARTNERS.COM

Constellation Place
10250 Constellation Blvd., Ste. 2700
Los Angeles, CA 90067
Office 310.557.8336
Fax 310.557.1276
Email finfacts@finfacts.net
© 1999 - 2024 George Smith Partners, Inc. DRE # 00822654 FINfacts is an ePublication of George Smith Partners, Inc. For Promotional Purposes Only. All Rights Reserved.
Hi, just a reminder that you're receiving this email because you have expressed an interest in George Smith Partners. Don't forget to add finfacts@gspartners.com to your address book so we'll be sure to land in your inbox!