FINfacts™ XXIV – No. 144 | November 14, 2018

MARKET RATES
Prime Rate 5.25
1 Month LIBOR 2.31
6 Month LIBOR 2.86
5 Yr Swap 3.10
10 Yr Swap 3.19
5 Yr US Treasury 2.95
10 Yr US Treasury 3.12
30 Yr US Treasury 3.36

RECENT TRANSACTIONS
$58,820,000 Non-Recourse Ground-Up Construction of 304-Unit Luxury Multifamily Property; Preferred Equity to 87% LTC

Senior Loan
Proceeds: $41,070,000
Rate: LIBOR + 4.0%
Term: 3+1+1
LTC: 60%
LTV: 55%
Origination Fee: 1%
Recourse: Completion Guarantee Only

Preferred Equity
Proceeds: $17,750,000
Rate: Market
Term: 3+1+1
Origination Fee: 1%
Recourse: Entity Only

Transaction Description:

George Smith Partners placed a total of $58,820,000 in structured financing for the ground up development of a luxury 304-unit multifamily development. Proceeds were structured as a $41,070,000 senior construction loan and $17,750,000 of preferred equity. Together these two sources represent 87% of the cost of the project.

The non-recourse senior loan floats at a rate of LIBOR + 4.0%, while the preferred equity accrues at a market rate return. Payments on the preferred equity financing are completely deferred until a capital event occurs at project stabilization. The Preferred Equity Provider is receiving a fixed return on their investment and will not participate in any future upside. There are no repayment guarantees to either Capital Provider.

Since the market has few new multifamily properties with the projected rents, both Capital Providers required extensive market comparable data and a deep dive into the Sponsor’s experience. The business plan was proven out by the Sponsor’s recent successful development, stabilization, and sale of a 220-unit property in the same MSA but a separate sub-market. The Sponsor’s Development Team from the previous project remained intact for the subject property. Financing closed with enough time for the Sponsor to avoid incurring additional fees extending their land loan.

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

$8,700,000 Non-Recourse Predevelopment Land Loan in Los Angeles’s Hollywood Neighborhood; 14-Day Close

Rate: 6.90% Fixed
Term: 12 Months
Amortization: Interest Only
Loan to Value: 60%
Lender Fee: 1.00%
Prepayment: Open Full Term
Guarantee: Non-Recourse

Transaction Description:

GSP arranged the $8,700,000 non-recourse first mortgage from a REIT to refinance a maturing bridge loan on a recently entitled retail site located along a major thoroughfare in Los Angeles. The loan provides an additional 12 months of term while the Borrower evaluates whether to re-entitle the site for a mixed-use project, or move forward with in-place entitlements. Although the loan is non-recourse, the Lender did not require an appraisal or other third-party reports, nor did it require an interest or carry reserve despite insufficient cash flow to cover debt service. Sized to 60% of value, the loan priced at 6.90% fixed for the 12-month loan duration.

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

Cash Out Apartment Refinance for Foreign Investors

Rate: 5.25%
Term: 5 Years Fixed, 30 Year Term
Amortization: 30 Years
Recourse: Full Recourse
Prepayment Penalty: 5,4,3,2,1
Lender Fee: None: 5.25%

Transaction Description:
George Smith Partners arranged a cash out permanent refinance of an apartment building in Burbank, California. The Sponsors moved abroad and had a difficult time getting their lender of 28 years to refinance their investment property. GSP worked diligently to find the Sponsors a new lender who was comfortable with having Sponsors living overseas.

Challenge:
Most lenders were not able to finance this transaction due to the fact that they didn’t have a warm body in the States. The Sponsors also had low credit scores with recent late payments on their credit report as well, which deterred numerous lenders. The Sponsors also had no liquidity in the States and most lenders like to see around 10% of liquidity to loan amount.

Solution:
George Smith Partners worked with a lender to get them comfortable working with foreign investors and pre-arranged the signing of loan documents with the U.S Embassy. GSP explained in great detail why the Sponsor’s credit scores were low, and why there were recent late payments on the Sponsor’s credit report. GSP demonstrated a plan to both the Lender and the Sponsors where everyone felt comfortable and closed the loan in 34 days.

Advisors

Reuven Risch
Vice President

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HOT MONEY
Collateralized Revolving Line of Credit

George Smith Partners is funding bridge and stabilized transactions from $500,000 to $10,000,000 on a recourse basis in California, Arizona, Nevada, Washington and Oregon. This portfolio lender offers the ability to finance the senior note as well as record a second trust deed behind their own first to be used as a revolver. As the credit facility is secured, there is no 364 day “clean-up” required. Interest is only paid on the outstanding balance if any and there is no stand-by fee or utilization fee. Revolver rates start at 6 month LIBOR for terms up to 30 years.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
“Normal” Inflation Continues But Oil Prices May Put the Brakes On

Today’s major data points can be interpreted as a look to both the present and the future, and forward looking markets are acting accordingly. This morning’s CPI report showed consumer prices rising at their highest level in 9 months, keeping the “inflation is back” narrative alive. But a closer look reveals that 1/3 of the increase is due to gasoline and other energy components. With worldwide oil markets plunging, the near future may see a cooling of inflation. Oil prices often impact interest rates, as markets view oil demand as a bellwether of global growth. So today saw Treasury yields drop, the 10 year is at 3.12%, after hitting a recent high of 3.25% earlier in the month. CMBS and other Fixed Rates: CMBS bonds stopped their slide (spreads had been widening), a cutback in supply as we approach year end helped. CMBS spreads for full leverage loans are still in the 200 range (about 190-210 over the Swap). Life companies at lower leverage are anywhere from 130-180 over the Treasury. So all-in coupons range from 4.50 to 5.25%, depending on quality and leverage. 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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