FINfacts™ XXIV – No. 59 | March 15, 2017

MARKET RATES
Prime Rate 3.75
1 Month LIBOR 0.93
6 Month LIBOR 1.42
5 Yr Swap 2.12
10 Yr Swap 2.47
5 Yr US Treasury 2.01
10 Yr US Treasury 2.50
30 Yr US Treasury 3.17

RECENT TRANSACTIONS
$30,000,000 Non-Recourse Cash-Out Refinance of 156,000 SF Retail Center in Los Angeles

Term: 10 Years
Rate: 10 Year Swap + 2.53% (4.91%)
Amortization: 5 years IO followed by 30 year amortization
Prepayment Penalty: Defeasance
LTV: 65%
Debt Yield: 7.75%
DCR: 1.23
Origination Fees: Par
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners secured $30,000,000 in proceeds for the non-recourse cash out refinance of a 156,000 square foot retail shopping center located in Los Angeles. The loan is fixed at a rate of 4.91% for a period of 10 years and offers 5 years of interest only payments. A number of challenges were encountered while marketing the deal. The property is anchored by a major grocery chain, but the lease rolls in 5 years. Several other tenants also roll within 5 years. Additionally, the property location is in a secondary area of greater Los Angeles. However, the borrowers had successfully kept the property at or near 100% occupied for the last several years due to the prominent visibility of the center along a high-traffic street. Finally, sales data was only available for the grocer and one of the separate pads. The owners did not have sales data for the other 20 tenants. GSP sourced a CMBS lender that was not only comfortable with each of these risks, but underwrote the transaction aggressively. The selected lender gave credit for rent increases coming within the next year and used a 3% vacancy rate, resulting in higher underwritten income. The lender was able to size the deal to a 7.75% debt yield, whereas most CMBS lenders would need a minimum 8% debt yield. This resulted in the selected lender providing proceeds of nearly $1,000,000 more than any other lender. Since the buyer had invested considerable amounts in capital expenditures and completed major upgrades in the past three years, the lender was able to underwrite to lower replacement reserves as well as lower tenant improvement and leasing commissions. The loan closed in about 40 days from the time it went into application.

 

 

Advisors

Matthew Kirisits
Director

$1,075,000 Multifamily Cash-Out Refinance with Significant Return of Equity at a 3.70% Fixed Rate for 5 Years

Rate: 3.7% fixed for 5 years
Term: 15 Years
Amortization: 30 Years
LTV: 65%
DCR: 1.20
Prepayment Penalty: None
Recourse

Transaction Description:

George Smith Partners arranged a $1,075,000 cash-out refinance, including a 65% return of equity, at a 3.70% fixed rate on a multifamily property located in West Hollywood, CA.  The sponsor, a Los Angeles based owner-operator, purchased the property less than two years ago and turned approximately half the units in the intervening period.  Despite the limited ownership and lease seasoning, the Sponsor sought maximum cash-out proceeds to capitalize on the value unlocked through unit turns and to make new acquisitions.  The sponsor also sought a fixed rate permanent loan to hedge against rising interest rates and a flexible prepayment structure to allow for a subsequent near-term refinance or sale, as additional value is unlocked through unit turns.  GSP sourced a lender familiar with the market and underscored the submarket, the property’s additional upside and sponsor’s track record, which ultimately allowed the lender to get comfortable with the large return of equity.  Sized to 65% of appraised value with a 1.20 DCR, the loan provided for a net return of equity of $425,000 to the sponsor.  The loan, which carries a 15 year term and amortizes over 30 years, is fixed at 3.7% for the first 5 years of the term and then resets and floats at 300 basis points over 1-Year Treasuries for the remaining 10 year term.  Sponsor’s application rate lock of 3.7% shortly after the election last year was honored by the lender, even though rates have moved significantly in the interim.  Although the loan provides the benefit of a fixed rate, it carries no prepayment penalty.


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HOT MONEY
Fixed Rate Construction Financing

George Smith Partners is placing ground up construction requests with a Regional Bank funding California multifamily rental development with five year fixed rate debt.  Sized to 65% of total construction cost, current coupons are sub-3.5% fixed for five years prior to floating over 30 day LIBOR for the remainder of the ten year term.  Interest is paid on funds as drawn; there is no negative arbitrage, and paid through an interest reserve on an interest only basis during construction.  The loan will begin to amortize upon stabilization.  Prepayments are structured as a step-down with the opportunity of a recourse burn-off.

More Hot Money ›

MIchael Anderson-Mitterling Featured in Commercial Property Executive's "Stars to Watch"

We’re happy to share that Michael Anderson-Mitterling has been featured as one of the “Stars to Watch”  in the March 2017 issue of Commercial Property Executive – congratulations on this fantastic achievement.  In his four years at George Smith Partners, Michael has closed transactions valued at $1.6 billion and risen to senior vice president.


Pascale's Portrait
PASCALE'S PERSPECTIVE
Fed Meets Expectations, Bond and Stock Markets Rally

Today’s quarter point rate hike and accompanying statement/press conference was a perfect “Goldilocks” moment.   The actual hike was “fully priced in” by markets with Fed Futures indicating a 93% probability.   The “action” was in the indications of future rate hikes.    Markets were hoping for a gradual and steady pace and the Fed delivered by indicating two more hikes this year and three in 2018.   This was in line with expectations and dovetailed well with recent bullish economic news, especially consumer and housing confidence.    The Fed’s confidence in the US economy is welcome news to investors and also reassuring to bond market inflation hawks that want interest rates to be “in front” of inflation.  The 10 year Treasury saw a major “relief rally” with yield dropping from 2.60 to 2.50%.    Bond investors also were reassured by a comment from Fed Chair Yellen regarding the Fed’s massive balance sheet, now at $4.5 trillion.  (Note that “normal” level pre-crisis was about $1 trillion).   Yellen indicated that the short term rate remains “the key active tool of policy” and there are no plans to sell off Treasuries and MBS bonds being held by the Fed.   Such a sell off would have been considered a “stealth rate hike” as the new supply would no doubt affect bond yields.    The Fed also got out ahead of potential rocky international news with potential unpredictable election results on tap for late spring out of France and other major Euro economies. stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners.

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More Perspectives ›

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