FINfacts™ XXIV – No. 134 | September 4, 2018

MARKET RATES
Prime Rate 5.00
1 Month LIBOR 2.11
6 Month LIBOR 2.53
5 Yr Swap 2.91
10 Yr Swap 2.96
5 Yr US Treasury 2.77
10 Yr US Treasury 2.90
30 Yr US Treasury 3.02

RECENT TRANSACTIONS
$59,000,000 Non-Recourse Refinance of a Regional Power Center in a Tertiary Midwest Market

Rate: One-Month LIBOR + 3.70%
Term: Two years plus three one-year extension options
Amortization: Full-term interest only
Loan to Cost: 77%
Loan to Stable Value: 70%
Guarantee: Non-recourse
Lender Fee: 1.00%
Prepayment: 15-month spread maintenance

George Smith Partners secured $59,000,000 in non-recourse bridge debt to refinance out an existing construction loan currently in forbearance due to a maturity default. The maturity default was due to a longer-than-expected construction period to convert the former 1,000,000 square foot enclosed regional mall, located in a tertiary Midwest market, into an open-air, 750,000 square foot power center. The Property lost a few anchor tenants to bankruptcy, requiring the Borrower to re-lease those spaces in addition to the lease-up of new retail suites created by the power center conversion. The Property is now 91.5% leased but 85% occupied, and due to lease co-tenancy violations a major tenant is currently paying percentage rent in lieu of base rent. Loan proceeds repaid the existing construction loan, covered closing costs, and will fund 100% of future CapEx, tenant improvement, and leasing commission costs associated with stabilizing the Property. The loan offers a 24-month initial term plus three extension options with durations of one year each, which provide the Borrower maximum flexibility. The non-recourse floating-rate loan priced at 3.70% over One-Month LIBOR and offered full term interest only payments.


$12,100,000 Bridge Loan for 127 Unit SRO Outside of Downtown LA

Rate: Prime + 0.25% (5.25% today)
Term: 5 Years
Amortization: 30 Years
Prepayment Penalty: No Prepay
LTV: 70%
Origination Fee: ½ Point
Guarantee: Recourse

Transaction Description:
George Smith Partners successfully placed the $12,100,000 bridge loan for a 127 unit Single Resident Occupant (SRO) apartment building located just outside of Downtown Los Angeles. The loan allowed the Borrower to recapture $3,000,000 of capital he had spent out of pocket for the renovation and lease up of a 1920’s vintage building. Work included installing new plumbing, a new roof and electrical, upgrading units and common areas, and buying out tenants. The recourse loan was sized to 70% of the Property’s stabilized value, and has no prepayment penalty. The loan has a 5 year term and a rate of Prime + 0.25%, which today is 5.25%.
Challenge:
Prior to engaging George Smith Partners, the Borrower attempted to finance this asset with multiple capital providers, but was unsuccessful due to its SRO use. SROs are essentially studio apartments with a sink and kitchenette, but provide residents with shared bath and kitchen privileges. The lack of kitchens and full baths in the units, along with past operating issues of Hotel SROs, make them challenging to finance. The Borrower also required a return of capital given his length of ownership, management, and continued maintenance of the Asset which is typically a challenge on un-stabilized assets.
Solution:
GSP used its extensive market expertise and lender relationships to identify a Southern California based capital provider with unique bridge loan programs that would allow the Borrower to execute his business plan on an un-stabilized project. With an in-depth understanding of this product type and the Downtown Market, GSP secured a loan for 70% of the stabilized value, including the return of all capital expenditures spent by the Borrower out of pocket.


Refinance of Prime Los Angeles Retail Shopping Center; Fixed at 4.715% for 10 Years
Shopping Center Loans - Strip Mall Refinancing

Rate: Fixed for 10 years at 4.715%, followed by floating at 6 month LIBOR plus 2.25%
Term: 25 years
Amortization: 25 years
Prepayment Penalty: 5,4,4,3,2,1
LTV: 45% maximum
DCR: 1.5
Origination Fees: Par

George Smith Partners secured a 10 year permanent refinance loan for a 17,054 SF retail strip mall shopping center located in a prime neighborhood in Los Angeles. The Property has prominent signage and easy access from a highly trafficked intersection. Several of the tenants have been in place for over 20 years and have a loyal and repeat customer base.

The Borrower sought a low leverage rate and term refinance but required a flexible prepayment penalty in case he decided to redevelop the Property. The Property also has an onsite dry cleaner that does not use a green cleaning process. The presence of the dry cleaner mandated a Phase II report that would require drilling. In addition, the Property has several tenants that operate under short term leases.

Instead of a Phase II report, the selected Lender estimated a Maximum Expected Loss if environmental remediation were required. The MEL was deducted from the appraised value of the Property. Since the loan still met the Lender’s LTV constraint, no further environmental testing was required. The Lender’s concern about short term leases was addressed by demonstrating that the Tenants had been located in the Property for many years. Overall, the Property had very little turnover due to the Owner’s skillful management. As a result, the Lender was comfortable with the consistency of cash flow at the Property.

Advisors

Matthew Kirisits
Director

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HOT MONEY
Bridge Lender Offering Aggressive Pricing

George Smith Partners is working with a national middle-market portfolio lender funding bridge transactions from $10,000,000 to $75,000,000 on a non-recourse basis. Leverage for multifamily goes up to 75% and pricing starts at LIBOR + 3% for loans sizing to a going-in 3.75% debt yield. The lender will finance Multifamily, Office, Retail, Industrial, Hotel and Student Housing. With the ability to close in 30 days from executed application, three to five year terms are available. Cap strike prices and term lengths are structured to accommodate the business plan and minimize cost. All decisions are discretionary; loans are serviced locally and not part of an underlying bank line or targeted for a CLO execution.

 

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Treasury Yields Spike As Economy Shrugs of Trade Tensions, A Harbinger of Things to Come?

Yesterday’s positive ISM manufacturing report was significant, the index hit a 14 year high (61.3% vs expectations of 57.9%). This comes on the heels of last week’s report that 2nd quarter GDP rose at a 4.2% rate, the best since 3rd quarter 2014. The data indicates that US Companies are expanding unfazed by the constant headlines regarding trade disputes. The trade tensions have been a major factor in “flight to quality” purchases of Treasuries. This has resulted in a downward pressure on yields, keeping them below the levels that are expected for this level of economic expansion in the US (remember Jamie Dimon’s recent remarks that the 10 year yield should be 4% or 5%?). Another factor point to a possible run up in yields this fall: on September 15, a special extension for pension funds to purchase Treasuries and deduct the contribution at last year’s lower rate expires, so a major buyer may slow purchases. With record supply spurring frequent and large auctions of debt and the Fed continuing to pare down its balance sheet of Treasuries, we may see the yield curve return to a more normal form with higher yields at the long end. The 10 year is sitting at 2.90%, watch for the next few key levels of 3.00% and then 3.15%. Will this week’s employment report (Friday) continue this narrative? Stay tuned.

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


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