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FINfacts™ XXIV – No. 22 | June 1, 2016
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| Prime Rate |
 3.50 |
| 1 Month LIBOR |
 .46 |
| 6 Month LIBOR |
.96 |
| 5 Yr Swap |
1.36 |
| 10 Yr Swap |
1.72 |
| 5 Yr US Treasury |
 1.37
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| 10 Yr US Treasury |
1.84
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| 30 Yr US Treasury |
2.62 |
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Rate: LIBOR + 4.65%
Term: 36 Months
Amortization: Interest Only
LTC: 65%
Lender Fee: 1%
Non-Recourse
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Transaction Description: George Smith Partners secured a $20,690,000 non-recourse bridge loan for the reposition and lease-up of superbly located, 58,894 square foot vacant office building in Hollywood, California. The renovation plan calls for extensive interior and exterior work to reposition this iconic asset from a traditional office use to Class-A creative space. Our sponsor is an experienced developer and required a capital partner who was able to provide flexible funding post close for this 100% vacant asset. GSP identified a national bridge lender with a local presence that underwrote the strong sub-market and Sponsor strength to become comfortable with the physical reposition and lease-up risk. Floating a LIBOR+465, the three year non-recourse loan was sized to 65% of total capitalization inclusive of capital upgrades and tenant improvements.
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Rate: L+2.75%
Term: 3 years plus one 2-year extensions
Amortization: Interest Only for initial 2-years
LTC: 60%
Prepayment: Open Prepayment
Release Provisions: Structured release provisions
Non-Recourse
Lender Fee: 0.50%
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Transaction Description: GSP successfully structured and placed the non-recourse acquisition bridge loan for a three property multi-tenant industrial portfolio, totaling 305,000 square feet in the Western United States. At acquisition the portfolio was 85% occupied with a going in debt yield of sub-9.5%. $13,800,000 of the on-book financing was funded at closing with the remaining $2,200,000 is to be future funded for immediate property improvements, future upgrades which includes immediate funding for the Sponsors strategic spec-suite program, as well as future leasing costs. Interest will not be paid on future funding until disbursement. The properties are able to be released as long as the remaining collateral maintains a 1.35x debt service coverage ratio on outstanding loan balance. The interest rate floats at L+2.75% for a three year term on an interest only basis for the initial two years of the term, with one (1) two-year extension.
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Rate: 3.52% for 7 Years, 6 Month LIBOR + 2.35% Thereafter
Term: 10 Years
Amortization: 30 Years
LTV: 60%
Prepayment: 5,5,4,4,3,2,1
Recourse
Lender Fee: Par
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Transaction Description: George Smith Partners successfully placed the refinance of a 25,000 square foot strip-retail property in Valencia, California. Title is held under a Tenants-In-Common (TIC) ownership structure with three separate Sponsors who acquired the asset only six months earlier from a seller who had mismanaged the property. Since acquisition, our clients increased monthly revenue by 25% with the addition of four new tenants. On-going deferred maintenance was also addressed, resulting in a more attractive asset for both tenants and shoppers. GSP identified a capital advisor who recognized the value to the considerable reposition and funded a partial return of equity in addition to providing very competitive fixed-rate financing. Fixed at 3.52% for seven years, the recourse loan will roll into a six-month floater at 2.35% over the corresponding LIBOR for the remainder of the 10 year term. Prepayment steps down from 5% with the last three years open to prepayment without penalty.
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As CMBS markets gel, Sponsors are seeking alternatives to the potential of future volatility as Wall Street prepares for Dodd Frank regulations to become effective later this year. GSP is placing fixed rate debt on stabilized assets with a non-Life Insurance portfolio provider funding forward rate locks to 12 months for loans from $1,000,000 to $10,000,000. Multifamily and multi-tenant commercial assets in major metro-markets are leveraged to 70% of appraised value for loan terms to 15 years, amortized over a 30 year schedule. Flexible step-down prepayment options may be structured to match a borrower’s investment strategy. A 2% refundable deposit is required for locks in excess of 60 days as is a small spread-premium based on loan and lock terms.
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The gap between the 2 year and 10 year Treasuries has narrowed to its tightest level since late 2007, producing a very flat yield curve. In the old days (pre-2008), this would have indicated expectations of slowing growth. But in the “new normal” of massive central bank intervention, there is a different interpretation. Background: last week’s remarks by Fed Chair Yellen (her first public remarks since March) were significant as she said that it’s “appropriate for the Fed to gradually and cautiously increase our overnight interest rate over time”. Markets key on the word “increase” and “probably in coming months such a move would be appropriate”. This seemed to confirm that a rate hike this summer is very likely. The Fed is increasingly comfortable with signs of wage inflation, housing starts, oil price stability and overall economic conditions. The futures market indicates a 34% chance of a rate increase in June, with a 62% chance for July. So the 2 year Treasury yield is rising as that is closely tied to short term rates. Why isn’t the 10 year rising commensurately? Investors are “split” on the 10 year; some are selling as the 10 year yield has always been tied to a pick-up in inflation and overall economic conditions. But some investors are buying the 10 year (forcing the yield down) on the theory that the rate increase may lead to a “risk-off” trade resulting in increased buying of the 10 year T as a safe haven, hence the flattening yield curve. The markets will continue to be extremely watchful of the data. This Friday’s employment report will be very closely watched as the last major data point before the Fed’s June 14-15 meeting. ….stay tuned…
David R. Pascale, Jr.
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Constellation Place
10250 Constellation Blvd., Ste. 2700
Los Angeles, CA 90067
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© 1999 - 2024 George Smith Partners, Inc. DRE # 00822654 FINfacts is an ePublication of George Smith Partners, Inc. For Promotional Purposes Only. All Rights Reserved.
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