FINfacts™ XXIV – No. 145 | November 28, 2018

MARKET RATES
Prime Rate 5.25
1 Month LIBOR 2.35
6 Month LIBOR 2.88
5 Yr Swap 3.01
10 Yr Swap 3.10
5 Yr US Treasury 2.87
10 Yr US Treasury 3.06
30 Yr US Treasury 3.34

RECENT TRANSACTIONS
$26,118,000 Mixed-Use Construction Loan Take-Out; Boise, ID

Rate: 4.63%
Term: Ten Year Fixed
Amortization: Full Term Interest Only
Prepayment: Yield Maintenance
Recourse: Carve-Outs Only

Transaction Description:

George Smith Partners placed a ten-year permanent loan for “The Fowler”; a recently constructed 159 unit mixed use multifamily development in Boise, ID. GSP placed the construction loan in Spring 2016 and the Borrower received its final Certificate of Occupancy in March 2018. The Property has become one of the most architecturally significant buildings constructed in downtown Boise. It includes live work units as well as 4,000 square foot of retail.

Our Sponsor obtained +95% physical occupancy in September and was looking to secure a perm loan before year end. Given the rapid lease-up and forecasted rate increases, GSP was commissioned to source the construction loan take-out that would allow for a partial return of equity upon stabilized occupancy but with limited stabilized operating history.

Boise was recently named the fastest growing city in the United States, and the capital markets embraced the Boise MSA’s market dynamics by offering multiple aggressive sizing and pricing structures. Our Sponsor selected an option that allows for a “second bite” for an additional recapitalization once cash flows are further documented and supported by stronger historical operating history. Priced at 153 basis points over the Ten-Year Treasury, the full-term interest only loan allows for future secondary financing.

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

$4,200,000 Acquisition and Reposition Financing Including $1.4MM of Future-Funding on a Multifamily Property in Long Beach, California

Rate: 30-Day LIBOR + 3.55%
Term: 36 months plus two 12-month extensions
Amortization: 36 months interest only
Loan to Cost: 65%
Prepayment: 12-month spread maintenance; open thereafter
Guarantee: Non-recourse
Lender Fee: 1.00%

Transaction Description:

George Smith Partners arranged a $4,200,000 first mortgage for the acquisition of a value-add multifamily asset located within one of Long Beach’s trendiest neighborhoods. The national balance sheet lender provided a non-recourse loan to 65% of total project cost which includes $1,400,000 to 100% of capital expenditures for property improvements. Interest on future proceeds is not incurred until funds are drawn. A short spread maintenance schedule provides maximum flexibility to allow the Borrower to quickly execute its value-add strategy, prior to taking out financing with permanent debt or a sale. Cash flow is maximized as the loan is interest only during the initial three-year term and priced at 3.55% over 30-Day LIBOR. Due to low going-in cash flow, the Lender structured an interest reserve to cover debt service during the 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

Construction Loans California | $3,820,000 Single-Tenant Construction Financing at LIBOR plus 5.00%; 95% LTC

Rate: 1 month LIBOR + 500
Term: 15 Months + three 3 month extensions
Amortization: Interest Only
Loan to Cost: 88% LTC
Lender Fee: 1.25%
Prepayment Penalty: None
Guarantee: Recourse

Transaction Description:
George Smith Partners arranged a $3,820,000, 95% LTC construction of an 11,500 square foot NNN DaVita Dialysis center in a tertiary market of California. The Borrower entity was a joint venture between a developer and the land owner.

Challenges:
The Property is located in a tertiary market and also in a predominately residential neighborhood. The Sponsor was unable to contribute cash equity to the Project. Many lenders require 15% of the as-complete value to be in the form of cash equity. Lastly, while the tenant is somewhat well known in the capital markets, the Property is rated as sub-investment grade.

Solution:
George Smith Partners identified a lender who recognized the strength of the tenant and the lease terms relative to the market. The Lender accepted the as-is value of the land which, after the entitlements were achieved, was significantly more than the limited partner’s cost. The Lender proceeded with the loan without any Sponsor cash equity in the deal, reimbursed the Developer for out of pocket costs to date and gave them additional proceeds as a result of excess value in the land. Because the Lender allowed the land to be contributed at as-is value, the loan amount resulted in a loan to cost ratio of 88%. Given the original cost of the land by the Limited Partner, the actual loan-to-cost ratio was closer to 95%.

Advisors

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

SPEAKERS CORNER

Gary E. Mozer, Principal/Co-Founder of George Smith Partners participated as a guest on the podcast, Capital Markets Today with Louis Amaya.

Click here to listen to the show focused on Structured Debt/Equity CRE Financing. 

You will hear:

  • The advice that Gary gives his best clients regarding mitigating risk.
  • Insight on Opportunity Zones
  • Economic sentiment for 2019


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HOT MONEY
Non-Recourse Bridge Financing Starting at L+275

George Smith Partners identified national bridge lender advancing floating rate transactions for all transitional property types from $10,000,000 to $100,000,000. Funded up to 70% of future stabilized value, floating rates start at LIBOR + 275 for a one year term plus options. Sub-1.0 coverage (ie below break-even cash flow) will be supported with a lender funded interest reserve. All transactions are pre-payable with no penalty. All executions are non-recourse beyond standard carve-outs.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Markets Rally as “Neutral Rate” Is Closer Than We Thought

Fed Chair Powell’s speech today sent stock markets up 2% and immediately halted this morning’s market “correction”.  The big change was Powell’s remark that rates are “just below” the neutral rate. Remember, the neutral rate is the rate the Fed is aiming to reach. The neutral rate is neither stimulative nor restrictive to the overall economy. Markets have been on edge as they feared that the Fed was on an unshakable path of continued rate hikes well into 2019. This sentiment was based on recent Fed statements and the “dot plots” produced at each FOMC meeting. It was assumed that there were four rate hikes on the horizon, one in December 2018 and 3 more in 2019. Today’s comments by Powell immediately changed that consensus to one in December and one in 2019. No doubt, the December 2018 dot plot will be closely watched. So it seems the Neutral Rate is 2.75%. It was once thought to be 3.25-3.50%. A lower neutral rate means a weaker global economy. Perhaps the “new normal” post recession world economy will require some accommodative policy after all. Today’s developments are an example of the “contrarian” economic news cycle: bad news becomes good news, (a grimmer economic outlook leads to lower interest rates in the future and markets cheer).  Powell also stressed that future policy is “data dependent” and not “set in stone”.  He also indicated concerns on the horizon: trade disputes/tariffs, Brexit, Italian bonds, and the IMF has lowered growth projections. Plus, today’s housing report showed new home sales falling to a 3 year low with inventory spiking. Corporate spreads are volatile and widening (pushing some Life Co loan spreads up also). The 10 year T hit a 2 month low of 3.04% today. 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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