FINfacts™ XXIV – No. 46 | November 16, 2016
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Prime Rate |
3.50 |
1 Month LIBOR |
0.54 |
6 Month LIBOR |
1.25
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5 Yr Swap |
1.69 |
10 Yr Swap |
2.07 |
5 Yr US Treasury |
1.69 |
10 Yr US Treasury |
2.24 |
30 Yr US Treasury |
2.94 |
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Rate: LIBOR + 2.95%
Term: 24 Months
Lender Fee: 0.75%
LTC: 77.0%
Recourse
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George Smith Partners successfully placed the ground-up construction debt of 49 Class-A apartment rental units in the San Fernando Valley, Los Angeles. Sized to 77% of actual costs, this construction loan will also fund the development of 1,300 square feet of ground-floor retail for residents and the local community. Despite ample development experience in this market, most lenders were unwilling to reach beyond 70% of cost. A strong lender relationship, cobbled with supportive market data and a meaningful repayment guarantee, allowed us to secure 77% of actual cost while maintaining an institutional rate without the use of sub-debt. Priced at LIBOR + 2.95%, the two year term is floored at 3.25%.
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Rate: 8.50%
Term: 12 Months
Lender Fee: 1.50%
LTC: 80.0%
Recourse
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George Smith Partners placed the refinance a three-parcel assemblage entitled for future development of 13 small-lot subdivision. A return of equity was sought to fund additional pre-development costs. GSP secured a capital provider comfortable with funding in-fill entitled land at higher leverage points: 80% of total capitalization in this situation. Our Sponsor’s strong development pipeline and proven track record added to the strength of this location/housing market. Sized to 80% of cost, the loan is fixed at 8.50% for a 12 month term with a 1.5% lender origination fee.
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George Smith Partners identified an institutional capital provider funding subordinate debt behind existing CMBS, Bank and Life Insurance Company debt. Financing is employed through methods including; transfer of interest, buying out an LP, investing in the LP, inserting a new LLC through an assumption. The sub-debt lender will fund fully stabilized assets up to 75% of cost/value with various pay structures. Terms are coterminous with the senior or may be pre-paid. Pricing starts at 8% for a current pay and requires accrual or equity participation. All structures are within full compliance of the existing senior debt.
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The rise in bond yields post US Election has been international. Japan’s 10 year is actually in positive yield territory. Italy’s 50 year bond has lost 16% of its value in 3 weeks. The 10 year T went from 1.71% on election night to a high of 2.30% this morning, with daily yield increases. All of this was based on speculation of President-elect Trump’s fiscal policies (infrastructure and military spending combined with tax breaks). Today, investors looked at actual data (persistently low oil prices, new economic reports showing flat wholesale prices and tepid industrial production). Bonds may be “oversold” and yields are attracting buyers. Fiscal policies still have to be approved by a Republican Congress that includes its share of “deficit hawks”. Today’s 10 year T closed at 2.22%. The next few weeks should be interesting as investors digest data and clues to next year’s policies. 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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