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FINfacts™ XXIV – No. 129 | August 1, 2018
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| Prime Rate |
 5.00 |
| 1 Month LIBOR |
 2.08
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| 6 Month LIBOR |
2.53 |
| 5 Yr Swap |
 3.01 |
| 10 Yr Swap |
3.07 |
| 5 Yr US Treasury |
2.87 |
| 10 Yr US Treasury |
3.00 |
| 30 Yr US Treasury |
3.11 |
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Rate: 5.04% Fixed for 10 years
Term: 10 years
Amortization: Interest Only
Prepayment Penalty: Yield Maintenance
DY: 7.35%
LTV: 59%
DCR: 1.35x on an IO basis
Guarantee: Non-Recourse
Origination Fees: Par
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Transaction Description:
George Smith Partners secured $9,150,000 for the non-recourse cash-out refinance of a newly built 25-unit multifamily building located in Los Angeles. The building is situated in one of the most sought after areas in Los Angeles and is in close proximity to popular restaurants, bars and entertainment in nearby Culver City. The construction take-out permanent loan is fixed at 5.04% for ten years with full term interest-only and has a yield maintenance prepayment penalty structure.
Challenge:
The building was in lease up when the financing process started. Thus, the owner did not have any seasoning on the newly leased units nor any historical operating expenses.
Solution:
GSP identified a capital source who was willing to provide proceeds at over 90% of cost and understood the strength of the asset in addition to the experience of the Developer. Based on these strengths, the Lender was able to underwrite to in-place income without seasoning, proforma operating expenses, and a 7.35% debt yield, which maximized loan proceeds. The Lender was able to fund once the property achieved 80% physical occupancy. The Sponsor locked a full term interest-only structure, which is advantageous to the property’s cash flow as the new leases continue to season.
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Blended Rate: 8.24%
Term: 12 months
Amortization: Interest Only
LTV: 84%
Prepayment Penalty: None
Guarantee: Non-Recourse
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George Smith Partners successfully arranged the acquisition financing of a 48 unit multifamily building located in the Koreatown neighborhood of Los Angeles. The Borrower needed a quick close loan to win the acquisition and also needed as much leverage as possible. With numerous tenants paying severely under market rent, the borrower’s business plan was to buy these tenants out and release the units at market rent. GSP ultimately worked with a senior lender and a mezzanine lender to maximize proceeds, while still closing the loan in time for the acquisition. GSP was able to push proceeds on the deal to 84% of the purchase price. The non-recourse loan has a 12 month term and a fixed blended interest rate of 8.24%. GSP additionally worked with the Lender to remove any prepayment penalty, This gave the Borrower the flexibility to refinance with permanent financing should he execute his business plan early. This is increasingly important in a rising interest rate environment.
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Rate: 4.90%, Fixed
Term: 10 years
Amortization: Three years Interest Only; 30-year amortization thereafter
LTV: 70%
Prepayment: Step-Down Prepayment
Guarantee: Non-Recourse
Lender Fee: None
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GSP successfully placed $1,022,000 in non-recourse permanent debt to take out an existing recourse mini-permanent bank loan on a mixed-use multifamily and retail property located in the heart of St. Louis City, Missouri. The 70% leverage loan has a fixed coupon of 4.90% for the duration of the ten-year term. The financing provides significant cash-out to the Borrower and maximizes cash flow via three years of interest only payments prior to converting to 30-year amortization. GSP leveraged its lender relationships to achieve the most competitive loan terms for the Borrower which included structuring multiple pricing and loan-to-value exceptions.
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George Smith Partners is working with a national provider funding fixed rate bridge loans from $3,000,000 to $25,000,000 starting at 5.0% on a non-recourse basis. With the ability to advance 85% of purchase price for new acquisitions, re-capitalizations, refinancing and special situations. Asset types include Multifamily, Office, Retail, Industrial, Parking Garages, Self-Storage, Mobile Home Parks and Hospitality (on a Recourse Basis). Interest only terms from 24-60 months with extension options and up to 85% of total capitalization.
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Today’s Fed Statement revealed a united Committee set on two more rate increases this year (one in September, one in December) as US economic growth was described as “strong” (as changed from “solid”) with economic activity “rising at a strong rate”. These changes in tone suggest that the Fed is unconcerned about tariff/trade issues, slow wage growth and most significantly, not deterred in its stated path by pressure from the administration. LIBOR replacement takes significant steps: SOFR, the “Secured Overnight Financing Rate” which is an index based on the cost of borrowing collateralized by Treasury securities. This is a reform that grew out of LIBOR “rigging” scandals as part of the LIBOR index is based on surveys of bankers. SOFR is entirely transactions based and has been gaining in stature since its introduction in mid-April (note that the reform commission targeted 2021 as the end of LIBOR) The SOFR rate opened at about 1.83% and has traded in a range of about 1.65% to 2.12% since then and sits at 1.93% (in the same time frame note that 30 Day LIBOR opened at about 1.90% and has traded in a range from 1.89% to 2.10%, today at 2.08%). SOFR took a major step towards becoming an accepted commercial loan index this week as as Fannie Mae issued the first ever SOFR based securities, a $6 billion offering. Many lenders in the US watch the agencies (Fannie and Freddie) for guidance on floating rate structures, so this is very significant. We should be seeing SOFR based loan structures soon. 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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