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FINfacts™ XXIV – No. 28 | July 13, 2016
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| Prime Rate |
 3.50 |
| 1 Month LIBOR |
 0.48 |
| 6 Month LIBOR |
0.97 |
| 5 Yr Swap |
1.04 |
| 10 Yr Swap |
1.35 |
| 5 Yr US Treasury |
1.06 |
| 10 Yr US Treasury |
1.47 |
| 30 Yr US Treasury |
2.17 |
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Rate: 30-Day LIBOR + 2.60%
Term: Three years plus two 12-month extensions
Amortization: Interest Only during Initial Term
Max Loan to Value: 65%
Prepayment: 1% months 1-12; open thereafter
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Transaction Description: George Smith Partners arranged $116,000,000 in non-recourse debt to refinance a suburban office portfolio in conjunction with an institutional equity recapitalization. George Smith Partners invested six months to optimize execution due to recent capital markets turmoil.
The first mortgage loan is cross-collateralized across the four properties in order to mitigate tenant rollover risk on the individual asset level, and features release provisions to allow flexibility in the event of a future sale of one or more of the assets. Proceeds are structured as an initial $109,000,000 loan, with up to $7,000,000 of additional funds available during the initial term for tenant improvement costs, leasing commissions, and free rent across the portfolio. The loan requires no additional reserves with interest is not paid on the $7,000,000 until drawn.
The first mortgage debt priced at one-month LIBOR plus 2.60% and required a LIBOR cap with a 3.00% strike price for the first two years of the term with a renewal for the third year, thereby reducing the overall cap cost to Borrower by shortening the cap’s duration. The loan features Interest Only payments for the three-year initial term in order to maximize cash flow available for distribution to investors.
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Interest Rate: 3.90% fixed for 3 years. Rate is reset every 3 years at 3.00% + 3 YR CMT
Term: 15 Years
Amortization: 30 Years
LTV: 75%
Prepayment Penalty: None
Recourse
Lender Fee: Par
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Transaction Description: George Smith Partners arranged the cash-out refinance of a recently renovated Upland, California office building. The new 15 year term loan is fixed for 3 years at 3.90% and resets for a fixed term every 3 years at 300 basis points over the then 3 Year CMT. This financing replaces a bridge loan and allowed our Sponsors to recover the majority of their equity invested for their acquisition and renovation. With an initial funding of $2,815,000, the remainder of the proceeds will be released once rent increases have been realized. There is no prepayment penalty or exit fee.
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Large non-recourse bridge loan requests are being fielded by a diverse group of mostly debt funds seeking wider yields. George Smith Partners is placing cash flowing reposition requests with a portfolio lender pricing from LIBOR + 300; $25,000,000 and up to 75% of costs to be held on-book until maturity. A 7.0% minimum debt yield is required at close. Core asset classes with light reposition, lease-up and future TI/LC fundings in core and secondary markets are considered.
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Last week’s very strong US jobs report helped rally US equity markets to all-time highs this week and took the focus off of Brexit fears. It also put the shockingly weak May report in perspective as an anomaly. The 10 year Treasury yield rose on the slight “risk on” trade, the 10 year now at 1.48%. However, negative yielding bonds worldwide hit $13 trillion (compared with virtually zero in most of 2014). The huge amount of negative debt is pulling down yields across the spectrum, including corporates. Disney sold 10 year debt at 1.85%, the lowest major corporate debt issuance in recent memory. The massive Brexit fallout will be back in focus tomorrow as the Bank of England meets and is expected to announce a rate cut and other stimulus including quantitative easing (sounds familiar? See Bernanke 2010-2013). The danger is if the announced measures are less than market expectations, there could be some market volatility (see Bernanke “taper tantrum” of 2013). With a new prime minister in office, the markets are looking at how England will navigate this unprecedented turn of events. 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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