FINfacts™ XXIV – No. 155 | February 20, 2019

MARKET RATES
Prime Rate 5.50
1 Month LIBOR 2.48
6 Month LIBOR 2.74
5 Yr Swap 2.55
10 Yr Swap 2.67
5 Yr US Treasury 2.47
10 Yr US Treasury 2.65
30 Yr US Treasury 2.99

RECENT TRANSACTIONS
$22,050,000 Non-Recourse, Acquisition and Development Financing to Reposition a 100,000 Square Foot Mixed-Use Building in Phoenix, AZ

Rate: L+685
Term: 2 yrs +1 yr extension
LTV: 75% (70% LTC)
Guarantee: Non-Recourse

Transaction Description:

George Smith Partners secured $22,050,000 of non-recourse acquisition and development financing for the reposition of a 100,000 square foot mixed-use office building and a 334 stall parking garage located in the Roosevelt Row Art’s District of Downtown Phoenix. The main tenant of the building recently vacated, leaving the Property with low occupancy. The Sponsor was able to acquire the asset with LOI’s for several large tenants in tow. The business plan was to reposition and stabilize the remainder of the mixed-use building after executing the leases shortly thereafter.

Sized at 70% of total project costs, the loan includes a future funding facility to cover tenant improvements and leasing commissions. The rate floats at 30 Day LIBOR plus 6.85% and carries a two year term with a one year extension option. The Lender was able to underwrite and deliver an executable term sheet in less than 48 hours. The loan funded roughly three weeks from the date of the application, meeting the required short window for closing. The Sponsor was also given occupancy credit based on the LOI’s, with executed leases allowed as a post-closing item. This offered the Sponsor more time to negotiate more favorable lease terms.

Advisors

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

$12,000,000 High leveraged Permanent Multifamily Financing in Tulsa, OK

Rate: 4.5% Fixed
Term: 7 Years
Amortization: 30-Year Amortization
LTV: 75%
Guarantee: Recourse
Prepayment Penalty: None

Transaction Description:
George Smith Partners successfully arranged the permanent financing for a class C, 350-unit apartment complex located in Tulsa, Oklahoma. The Sponsor sought a permanent loan to refinance the Property after spending a million in upgrades. The Sponsor’s goal was to lock in a long-term, low interest rate in a rising interest rate environment as the building was close to reaching stabilized occupancy.

Challenges:
The Sponsor had turned around a rough non-performing property and was in the process of completing the lease-up. In addition, the Sponsor’s syndication structure made financing more complicated because of the small shares of ownership.

Solution:
GSP was able to prove to the Lender the Sponsor’s successful track record with similar properties, highlight the Property’s growing position in the market and the strong rent growth. Because GSP has completed so many other deals with syndicators, we were able to structure the loan so that both the Sponsor and Lender were comfortable.

Advisors

Bryan Shaffer
Principal/Managing Director
Max Lehrman
Vice President
Ruben Bohbot
Assistant Vice President
Meron M. E. Amar
Analyst

$5,550,000 Non-Recourse Acquisition Loan at 5.15% Fixed for Ten Years, 3 Years Interest Only

Rate: 5.15% Fixed
Term: 10 Years
Amortization: 30 Years
Interest Only: 3 Years
Prepayment Penalty: Defeasance
LTV: 55%
DCR: 1.30x
Origination Fees: Par

Transaction Description:
George Smith Partners secured $5,550,000 for the acquisition of a 129,861 square foot multi-tenant industrial/office building located in a suburb of Atlanta. Constructed in 1998, the building was completely renovated in 2017. The space was divided into three and re-tenanted with local companies. Fixed at 5.15% for ten years, the non-recourse loan has 3 years of interest only payments, followed by a 30-year amortization.

Challenges:
Prior to the renovation, the building was occupied by a single tenant. The tenant vacated while the Property was under renovation, resulting in a gap in the historical P&Ls. The newly renovated property had less than one year of cash flow seasoning and three recently signed leases. Although the new NNN leases are for 10 year terms, they contain termination options. The Buyer requested to have only the borrowing entity sign as the carve out guarantor on the non-recourse Guaranty.

Solution:
GSP worked with a Lender that understood the strength of the asset and the submarket. The limited occupancy history was addressed by emphasizing the strength of the newly signed Tenants and the appraisal provided further support for the stability of future cash flow. As a result, the Lender was able to utilize the short operating history and approve an entity to sign on the carve out, without the requirement for a warm body guarantee.

Advisors

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

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HOT MONEY
5.5% Fixed Rate Bridge Starting at $3mm to 80% LTC Funding Below Break-Even Coverage

George Smith Partners is placing non-recourse financing for debt sponsors nationwide on all major property types. With transactions sized from $3 million to $20 million for fixed rate bridge w/sub 1.0 cash flow, pricing starts at 5.50% for terms up to five years with flexible yield maintenance and up to 80% of cost. Pricing for floating rate transactions start at LIBOR + 325. Transactions go up to $50 million with terms up to five years and up to 85% of cost.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Markets Usually Don’t Like Uncertainty, But Today They Do

The old maxim about financial market aversion to uncertainty is well known. However, today’s unusually newsworthy release of Fed minutes from January saw markets cheering uncertainty. It seems that the Fed’s “dot plot” indicating two planned rate hikes in 2019 is by no means set in stone (note that previous dot plots indicated three rate hikes in 2019). As I discussed last month, the futures market has been skeptical of the dot plots. That predictive market has been indicating a probability of zero hikes in 2019. Today’s Fed minutes release put the matter to rest (for now) as a majority of the participants are uncertain about any future rate hikes this year. The statement cited an uncertain atmosphere of risks to economic growth and very little concern about inflation. Of course there is a contrarian aspect to all of this: stocks and bonds rallied based on a more pessimistic outlook on the economy. Very significantly, the Fed addressed the “elephant in the room”, their huge balance sheet and its ongoing program to reduce holdings by selling bonds as they mature. Today’s minutes also showed participants broadly agreeing to announce a plan to stop balance sheet reduction later this year. This is a paradigm shift. It seems the Fed is planning on retaining a very large balance sheet on a near permanent basis. All of this helped drive the 10 year T yield down to 2.64%. With fixed rate loan spreads for agency, CMBS, LifeCo, etc ranging from about 130-200 depending on property metrics and leverage, all in rates range from 4.00% to 4.60% approximately. Again, its not too late to lock in historically low fixed rate financing. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

More Perspectives ›

As Seen in Urban Land Institute News

“Thoughtful Living”: The Philosophy Driving Mack Real Estate Development’s Success in South Park in Downtown Los Angeles

Click here to read an interview with Paul Keller, Chairman of Mack Real Estate Development LLC, written by George Smith Partners Senior Vice President Zachary Streit. The article was written for Urban Land Institute as part of the Woman’s Leadership Initiative program’s tour of Mack Real Estate Developments latest 38 story high rise tower in South Park in Downtown, Los Angeles.

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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