FINfacts™ XXIV – No. 66 | May 3, 2017

MARKET RATES
Prime Rate 4.00
1 Month LIBOR 0.99
6 Month LIBOR 1.42
5 Yr Swap 1.95
10 Yr Swap 2.26
5 Yr US Treasury 1.84
10 Yr US Treasury 2.30
30 Yr US Treasury 3.00

RECENT TRANSACTIONS
70% Leverage Non-Recourse Refinance of a 65% Occupied Office Complex with Single Tenant Concentration and Rollover Risk at Loan Maturity

Rate: Confidential
Term:
Three years plus two 12-month extensions
Amortization:
Interest Only (initial term and extensions)
Max Loan to Value:
70% Initial, 65% stabilized
Prepayment:
15 months spread maintenance, open thereafter
Lender Fee:
1.00%
Guaranty:
Non-Recourse

 

GSP arranged $16,510,000 in non-recourse first mortgage financing from a national debt fund on a 65% occupied Class A office complex in North San Diego County, California.  A credit tenant with a 2022 lease expiration accounts for over 90% of current property income and the vacancy is mostly comprised of a single 26,000 square foot contiguous space.

GSP marketed the transaction by filtering out vacant spaces that were not competitive with the subject property and highlighted the lack of large customizable available spaces in the market which the subject property possessed.  GSP sourced a lender familiar with the local office inventory and recognized the leasing potential of a large customizable floor plate in a market with increasing demand for corporate headquarter space.

In order to maximize Sponsor cash flow, the loan is structured as interest only with a three year initial term and two one-year extension options. To mitigate rollover risk at loan maturity, a cash flow sweep commences if the existing credit tenant does not exercise an early lease renewal by month 30 of the loan term. $14,750,000 in loan proceeds funded at closing with an additional $1,760,000 funding for lease-up related tenant improvements and leasing commissions to be disbursed prior to month 24 of the loan.  Interest on the future funding is not charged until the earlier of disbursement of proceeds or month 24 of the loan.  The first mortgage debt priced over one-month LIBOR and required a LIBOR cap with a 3.00% strike price for the initial term.

 

Advisors

Nick Rogers
Vice President

$1,475,000 in Non-Recourse Financing for 11-Unit Multifamily Purchase in Los Angeles

Rate: 4.23% fixed for 3 years, then floating at 6 month LIBOR plus 2.55%
Term: 30 years
Amortization: 30 years
LTV: 65% maximum
Prepayment Penalty: 3,2,1
DCR: 1.20
Lender Fee: Par
Guaranty: Non-Recourse

George Smith Partners secured $1,475,000 in proceeds for the purchase of a 6,760 SF, 11-unit multifamily property located in Los Angeles. The non-recourse loan is fixed at a rate of 4.23% for a period of 3 years, then floats at 6 month LIBOR plus 2.55%. Once in app, the loan was approved quickly and the lender was ready to close within about 40 days.

 

Advisors

Matthew Kirisits
Director

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HOT MONEY
Joint Venture Equity for Top 20 Markets

George Smith Partners has established a relationship with an equity investor group that is providing joint venture equity with an emphasis on home building and residential land development in the top 20 M.S.A.s throughout the U.S.  The investor group is managed by veterans that have been in the land development and home building business for decades.  They seek established private developers and builders who have strong teams and experience in their local markets and need the capital to grow.  Multifamily development and other asset classes will also be considered in these top 20 markets.  Depending on the duration and risk profile of the deals, the fund targets returns with a minimum 20% IRR and a 1.5x equity multiple and a minimum investment of $5,000,000 per deal with a goal of investing more than $25,000,000 per partner.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Yields Up Slightly After Fed Statement

Today’s Fed statement basically put markets on notice to expect a June increase barring any unforeseen negative economic news and/or major risk events (geopolitical, etc).    The Fed is viewing recent soft economic reports (1st quarter GDP, lower inflation, weaker consumer spending) as being “transitory” and seasonal, not structural.    The 10 year T jumped up slightly up to 2.32%, partially due to “relief selling” as a government shutdown is being averted for now.  September could get dicey as the 2018 budget year must be funded with both sides girding for battle and a debt ceiling deadline looming.  Note that these potential legislative battles and brinkmanship may make it difficult for the anticipated September increase by the Fed.  Another factor is the long awaited shrinking of the Fed balance sheet is starting to be discussed.  They are floating “trial balloons” indicating an intention to curb reinvestment of existing bonds (Treasuries and Mortgage Back Securities) in the portfolio as they mature.   This could lower the now $4.5 trillion balance sheet to about $2.8 to $3.0 trillion.   The Treasury has already issued a guidance note that it may be increasing the supply of new Treasuries as rates will rise due to increased supply.  Many economists feel that the balance sheet trimming needs to occur after a few more increases in the short term rate to avoid major disruption in the financial markets.   Of course, its all theoretical as the massive quantitative easing “experiment” was unprecedented and we are in “uncharted territory”. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners.

More Perspectives ›

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