FINfacts™ XXIV – No. 143 | November 7, 2018

MARKET RATES
Prime Rate 5.25
1 Month LIBOR 2.32
6 Month LIBOR 2.84
5 Yr Swap 3.21
10 Yr Swap 3.29
5 Yr US Treasury 3.08
10 Yr US Treasury 3.24
30 Yr US Treasury 3.43

RECENT TRANSACTIONS
$45,000,000 Non-Recourse Cash-Out Refinance of Studio/Office Mixed-Use Property in Hollywood, CA

Rate: Floating at Prime minus 25bps (4.75% today)
Term: 7 Years
Amortization: 25 Years
Guarantee: Non-Recourse
LTV: 55%
Prepayment Penalty: None

Transaction Description:

George Smith Partners secured a $45,000,000 non-recourse cash-out loan for the refinance of an office and production studio property located in the heart of Hollywood, California. The Sponsor purchased the Property all-cash in late 2017, with the knowledge that the in-place tenant had an early 2018 lease maturity and would not be renewing. Shortly after purchasing the asset with no tenant in tow, the Sponsor signed a long term lease with a high profile media technology company for the entire property.

Challenges:

Despite a long term lease with a prominent credit tenant, the transaction posted numerous challenges. Transaction requirements included: a lender comfortable with the asset’s specialty use; a non-recourse execution; a structure with no prepayment penalty allowing for maximum flexibility in the event of a sale or refinance; no impounds, escrows or lockboxes; and $45,000,000 in proceeds at a sub 5% rate.

Solutions:

In addition to emphasizing the iconic nature of the asset and its trophy location, GSP demonstrated the significant value the Sponsor had unlocked by signing an accretive lease with a long term, credit tenant and the Sponsor’s significant cash investment remaining in the Property. GSP also provided sales and rent comps supporting the basis in the asset and the rental rate in the lease. These items ultimately allowed the Lender to get comfortable with the transaction.

The $45,000,000 non-recourse loan carries a 7-year term and floats at an attractive rate of Prime minus 25 bps (4.75% today). The loan requires no impounds, escrows or lockboxes and is freely prepayable at any time with no penalty or exit fee.

Advisors

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

5-Day Close $6,350,000 Non-Recourse Bridge Refinance of a Multi-Tenant Retail Center in Northern California

Rate: Months 1-12 at 6.90%, Months 13-24 at 7.90%
Term: 24 Months
Amortization: Interest Only
Loan to Value: 51.5%
Prepayment: None
Guarantee: Non-Recourse
Lender Fee: 2%

Transaction Description:

George Smith Partners successfully arranged a $6,350,000 bridge refinancing for a fully occupied un-anchored, 7-tenant retail center located in downtown San Mateo, California. The Property has a total net rentable area of 13,303 SF. Tenants include a convenience store and local restaurants. The Sponsor will utilize a portion of the loan proceeds to pay off existing lenders, and the rest of the proceeds will be invested into other investments. The Sponsor’s preferred exit is to sell the Subject Property through a 1031 exchange.

Challenges:

All tenants are on short-term or month-to-month leases by the time of funding. Although lacking a strong cash flow, the Sponsor requested maximum cash out. As a result of rising interest rates, several capital providers passed on this opportunity because the Property’s cash flow becomes tighter after applying a higher underwriting rate. The underwritten value was affected by a high debt service coverage ratio as the Property is classified as “un-anchored”. In addition, capital providers challenged the Property’s low capitalization rate given it is located on a busy corner with a signal in a downtown area.

Solution:

GSP identified an asset based private money lender who offers simple and quick closing without requiring an appraisal or third party reports. GSP worked with the Lender to structure a 24-month loan, fixed at 6.90% (months 1-12) and 7.90% (months 13-24), interest only payments, no upfront TI/LC holdbacks and on-going reserves. There is no prepayment penalty.

Advisors

Gilda Rivera
Senior Vice President
Irene Liu
Assistant Vice President

$2,795,000 Bridge Financing for a 48% Occupied, Un-Anchored, Strip-Retail Center in Norwalk, CA

Rate: Prime + 0.50%
Term: 3 Years
Amortization: Interest Only
Loan to Value: 68.7% LTC
Lender Fee: 0.50%
Prepayment: None
Guarantee: One fund-level guarantee and two individual guarantees.

Transaction Description:

George Smith Partners arranged a $2,795,000 ($267/Building SF) bridge loan to finance the acquisition and re-positioning of a 48% occupied, 10,480 sf strip retail center in Norwalk, CA. The proceeds will be used to acquire the asset and to sub-divide and re-tenant a 6,500 sf, vacant, former automotive space.

Challenges:

The Existing Tenant is paying a rental rate that the capital markets perceived to be at market but below the sponsor’s pro-forma rental rates for the vacant spaces. Furthermore, the Appraiser also concluded a market rate at the lower end of the spectrum. This resulted in a lower appraised value and stabilized cash-flow. The Sponsor had a signed LOI at their pro-forma rental rate in hand, but would not be converted into a signed lease until near the escrow closing date.

Solution:

George Smith Partners was able to identify operating expenses in the appraisal that could be adjusted down resulting in a higher net operating income and value. GSP was also able to convince the Lender to raise their LTC constraint given the Sponsorship’s track record of successful retail projects. The final result was a loan amount reflective of the Lender’s term sheet.

Advisors

Scott Meredith
Senior Vice President
Huber Bongolan, Jr.
Assistant Vice President

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HOT MONEY
Bridge Financing Fixed at 5.25% Rate | Bridge Loans & Bridge Lender

George Smith Partners is working with a national bridge lender funding fixed-rate reposition transactions from $15,000,000 to $75,000,000 in primary and secondary markets. Bridge rates start at 5.25% fixed for terms up to three years. In today’s rising interest rate environment, many investors and developers prefer fixed rate bridge options in order to mitigate the risk of rate fluctuations and avoid purchasing a rate cap agreement at closing. Leverage for Office, Multifamily, Industrial, Hotel, Self-Storage & Grocery Anchored and High Street Retail up to 80% of cost. The bridge program offers future funding and prepayment with a minimum 12 months of call protection.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Gridlock in Washington, Wages Finally Pop, Trade Tensions Remain

Equities rallied today on the election results. Traditionally, Wall Street likes divided government and gridlock as that provides more certainty as the chances of major legislation being passed are diminished. Treasury buyers were nervous about the chances of another major tax cut increasing the already huge supply of government bonds. Fed Watch: Last weeks employment report confirmed that we are finally “here”.  Years of ultra-accommodative monetary policy is helping to produce significant wage gains. Anecdotal evidence suggested that even with the tight job market, employers had been increasing everything except wages (perks, benefits, bonuses, etc). Employees finally have pricing power on wages.  Last week’s report showed healthy gains of over 3.0% in line with the Fed’s “mandate” to put the average American in a position to succeed. A rate increase in  December is a virtual certainty. A breakthrough in US China trade talks could unleash yields further upward, today the 10 year sits at 3.21% about 6 bps below its recent high. 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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