FINfacts™ XXIV – No. 139 | October 10, 2018

MARKET RATES
Prime Rate 5.25
1 Month LIBOR 2.28
6 Month LIBOR 2.61
5 Yr Swap 3.13
10 Yr Swap 3.22
5 Yr US Treasury 3.01
10 Yr US Treasury 3.16
30 Yr US Treasury 3.36

RECENT TRANSACTIONS
$28,700,000 Boise Bridge Non-Recourse Acquisition Loan to 73% of Cost @ LIBOR+300

Rate: LIBOR +300
Term: 24 months
Amortization: Interest Only
LTC: 73%
Debt Yield at Close: 6.3%
Origination Fees: 1.0%

Transaction Description:

George Smith Partners secured $28,700,000 in proceeds for the acquisition of a 254-unit multifamily property in Boise, Idaho. While near full occupancy at close, the Property has dated interiors and common areas, as well as some deferred maintenance. A capital budget was drafted by our Sponsor for unit upgrades at lease-turn as well as common area improvements. Proceeds are structured with $25,500,000 for the initial funding plus an additional $3,200,000 for capital improvements. Floating at 30 day LIBOR plus 3.0%, the two-year term will be paid current, monthly out of cash flow and does not carry a pre-payment penalty. An earn-out for an additional $2,300,000 was structured once the Subject Property achieves an 8.5% debt yield.

Challenges and Solutions:

The Sponsor was in a 1031 exchange and needed to close quickly as their exchange provided a narrow window to close. While the going in cap rate provided meaningful yield Day 1, GSP focused their marketing efforts on the Sponsor’s proven track record to execute on their previous deals.

Several capital providers passed on the deal due to the fact Boise is not a top MSA by population, even though it was recently named as America’s fastest growing city by Forbes Magazine. Certainty of execution was required for this short acquisition escrow, and the need to identify a capital provider knowledgeable with the Boise market was paramount in avoiding educational “ramp-up” delays so that escrow would fund timely.

GSP vetted this location and confirmed market knowledge with loan decision makers prior to the issuance of an application. The loan closed within 40 days of GSP’s engagement on the deal.

Advisors

Jonathan Lee
Principal/Managing Director
Shahin Yazdi
Principal/Managing Director
David Stepanchak
Senior Vice President
Matthew Kirisits
Vice President
Olga Alworth
Senior Vice President
Samuel Sarshar
Assistant Vice President

$17,725,000 Non-Recourse Construction Financing for a 127-Key Cambria-Branded Lifestyle Hotel in the Roosevelt Row Arts District of Phoenix, AZ

Rate: 1 Mo. LIBOR + 7.50%
Term: 3+1+1
Amortization: Interest Only
LTC: 68.0%
Guarantee: Non-Recourse (with standard bad boy carve-outs)

Transaction Description:

George Smith Partners secured $17,725,000 in non-recourse construction financing for the development of a 127-key Cambria-flagged lifestyle hotel in the Roosevelt Row Arts District of Phoenix, Arizona. This financing facility allowed the Sponsor to begin construction on the first of several projects slated for delivery within Roosevelt Row (Ro2). The Sponsor won a city-led RFP bid earlier this year that provided them with control and ownership of four contiguous city blocks within the core Ro2 area. This was the Sponsor’s first lifestyle branded hotel development and their first hotel development within the state of Arizona. These facts presented a challenge for many groups, despite their extensive experience developing other asset classes, including Monroe 44, the tallest residential building in Arizona.

GSP sourced a hospitality lender who shared the Sponsor’s vision and excitement about the revitalization of the historic community, recognizing their ability to execute this project under the Cambria Brand. Despite several collateral restrictions presented throughout the application process, GSP was able to facilitate creative alternative scenarios for security of both Lender and Sponsor, ultimately achieving a mutually agreeable solution and additional proceeds to cover the new shortfall. The three year floating rate note was priced at 1 Month LIBOR + 7.50%, and was sized to 68.0% of project costs.

Advisors

Malcolm Davies
Principal/Managing Director
Zachary Streit
Vice President
Evan Kinne
Vice President
Alexander Rossinsky
Assistant Vice President
Rachael Lewis
Assistant Vice President
Aiden Moran
Analyst

$10,000,000 Acquisition and Reposition Financing on 64-Unit Multifamily Property in Salt Lake City

Rate: 30-Day LIBOR + 3.50%
Term: Three years plus two 12-month extensions
Amortization: 36 months interest only
Max Loan to Cost: 80%
Prepayment: 18-month minimum interest period
Guarantee: Non-recourse
Lender Fee: 1.00%

Transaction Description:

GSP arranged the $10,000,000 first mortgage on a 1990’s vintage, 64-unit multifamily value add property. The National Balance Sheet Lender provided a non-recourse loan at 80% of total project cost including 100% of future CapEx funds totaling $15,000 per unit. Furthermore, the Lender sized the stabilized proceeds to a 7.35% As-Stabilized Debt Yield. Interest expense is not incurred on CapEx funds until drawn, and sponsor cash flow is maximized as the loan is interest only during the initial three-year term. The 30-Day LIBOR plus 3.50% coupon requires interest rate risk protection and in order to minimize associated sponsor cost the lender structured the interest rate cap with a two year duration at closing plus an obligation to renew for the third year of the initial term. Due to low going in cash flow, the Lender structured an interest reserve to cover debt service during the peak reposition period.

Advisors

Gary E. Mozer
Principal/Co-Founder
Katie H. Rodd
Senior Vice President
Michael Anderson-Mitterling
Senior Vice President
Kyle Howerton
Senior Vice President
Akash Rohera
Assistant Vice President

SPEAKERS CORNER

Please join Gary M. Tenzer, Principal/Co-Founder at George Smith Partners, and other top-level industry leaders on Monday, October 29th for the RealShare Apartments Conference at the Westin Bonaventure Hotel. Mr. Tenzer will be moderating the Debt and Equity Financing Panel, “The Issues Affecting Deal Flow”. The discussion will cover the macro issues affecting debt financing, the direction of interest rates, and where we are in the overall housing cycle. Register here and use the coupon code, “GSP20” for 20% off the ticket price.


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HOT MONEY
National Portfolio Permanent Lender With Zero Prepayment

George Smith Partners is working with a national portfolio lender that is structured with no pre-payment penalty and loan origination fees of 0.50% for transactions up to $50,000,000. Rate is set at acceptance of LOI and most loans close within 60 days of pre-screen. Partial or non-recourse deals on strong credits that reflect a low LTV and higher than normal debt coverage for properties located in sub-market areas with communities of 100,000+ population.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Wall Street Correction, Is This Part of “Normalization”?

Last week’s comments from Fed Chair Powell have resonated with the markets. He said that we are a “long way” from neutral on interest rates and that the “really extremely accommodative low interest rates are not appropriate anymore”. This is a vote of confidence in the strength of the US economy, so it’s good news, right? Also, note that the Fed has indicated that they may increase rates above the neutral rate if necessary in order to restrain inflation. It seems that there is some technical support for 10 year rates above 3.00% (the yield did not “snap back”, it is staying high partly due to continued record supply). Many accused the Fed of inflating asset bubbles with years of low rate and accommodative policy. Well then, now those assets may be “marked to market” and we may be seeing the “real” values of stocks and other financials. Note that during much of today’s plunge in stocks, both stocks and bonds were selling off (which is unusual). However, there was some “flight to quality” bond buying at the end of the day, the 10 year yield dropped to 3.16% as traders noted that tomorrow’s Dow futures indicate a triple digit drop. 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


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