FINfacts™ XXIV – No. 7 | February 17, 2016

MARKET RATES
Prime Rate 3.50%
3 Month LIBOR 0.62%
6 Month LIBOR 0.87%
5 Yr Swap 1.16%
10 Yr Swap 1.66%
5 Yr US Treasury 1.26%
10 Yr US Treasury 1.82%
30 Yr US Treasury 3.50%

RECENT TRANSACTIONS
$9,200,000 Refinance of a Shadow Anchored Retail Center to 85% of Current Value

Rate: LIBOR + 4.95%
Term: 18 Months w/ Two (6) Month Extensions
Loan to Value: 85% As-Is, 75% Stabilized
Amortization: Interest Only
Prepayment: 15 Month Spread
Lender Fee: 1.0%
Non-Recourse

Transaction Description: George Smith Partners successfully placed $9,200,000 in non-recourse, floating-rate bridge debt on an 87% leased, 1980’s vintage, Los Angeles County multi-tenant retail property. The asset is shadow anchored by a regional ethnic grocer that owns its own store and does not report sales, but is known to be a one of the top stores in the company’s chain. The owned collateral includes a national investment-grade off-price retailer that rents a large additional storage suite at significantly below market rent on a month-to-month basis. In order to execute the Sponsor’s business plan of re-leasing the storage space as market rate space and upgrading the remaining tenant mix, GSP identified a lender that provided a short-term bridge loan at 80% of total project costs, including a future funding associated with lease-up costs. The non-recourse loan priced at one-month LIBOR plus 4.95%. Interest is not paid on the unfunded proceeds until drawn.


$4,600,000 Stabilized Class A 154-Unit Multifamily Refinance; Garland, Texas

Rate: 3.895%
Term: 10 Years
Loan to Value: 60.0%
Amortization: 30 Years
Prepayment: Steps-down from 5.0%
Non-Recourse
Lender Fee: Par

Transaction Description: George Smith Partners successfully placed the refinance a 154-unit Class-A multifamily community in Garland, Texas; a Dallas suburb. The Sponsor still had time remaining on his existing fixed rate loan, prior to the loan opening to prepayment without penalty. Believing interest rates were on the rise; our Sponsor weighed the benefits of re-committing to current historically low interest rates versus the off-set of paying the prepayment penalty. GSP conducted a sensitivity analysis for our Client that allowed him to measure what the cost of borrowing should rates bump up a quarter, half and three-quarters of a point. The rate was locked at application while his prepayment penalty amortized down during the due diligence period. Sized to 60% of value, a non-recourse 10-year fixed interest rate loan was locked and funded at 3.895%. A step-down prepayment penalty was structured at no additional cost.


$4,056,000 Multifamily Cash-Out Refinance in excess of Cost

Rate: 3.57% Fixed for 5 Years; L+275 After
Term: 20 Years
Loan to Value: 75%
Amortization: 30 Years
Prepayment: 3,2,1,1,1 1%
Non-Recourse
Lender Fee: Par

Transaction Description: George Smith Partners structured the cash-out refinance of a 40 Unit apartment building in the Mid-Wilshire/Koreatown area of Los Angeles. This asset was acquired by the Borrower less than 18 months prior to this refinance that netted a return of as well as a small return on cash equity. Our Sponsor qualified for this level of capitalization due to the extensive rehabilitation project completed and the re-tenanting of the subject at current market rents. Sized to 75% of the now stabilized value, the 20 year loan is fixed for 5 years at 3.57% and floats at LIBOR + 275 for the remaining 15 years. The loan will amortize over 30 years after the initial 1 year of Interest Only payments. A step-down prepayment from 3.0% opens at par after the fifth year.


Pascale's Portrait
PASCALE'S PERSPECTIVE
Market Metrics Update

As the world economy seems to be moving beyond the “new normal” of massive central bank intervention, it is interesting to note the new market metrics: oil prices (higher is better), negative rates (over $8 trillion of global debt yields less than zero), dollar/yen ratio (a strengthening yen indicates a flight to quality, ie “risk off”), and the realization that US growth will be in the 1-2% range for the foreseeable future.  The IMF’s Christine Lagarde coined the phrase “the new mediocre” in October and it seems to fit.  Markets have rallied in the past few days on indications of cooperation among major oil producing countries to freeze production levels (although the glut is so large, a coordinated cut in production is necessary to raise prices).  The 10-year T is at 1.82% after dropping to below 1.60% in recent weeks.  Credit spreads: The corporate bond market showed signs of life after weeks of “frozen” debt issuance as top tier corporations; IBM, Toyota, Apple, etc issued over $23 billion in bond sales on Tuesday.  Several sub-investment grade companies are considering bond sales soon.  Hopefully this will auger a rally in credit spreads after months of widening.   Stay tuned.   David R. Pascale, Jr.

More Perspectives ›

Founded in Los Angeles, in 1992, George Smith Partners, Inc. is a leading, national real estate investment banking firm. Our diverse and innovative structuring expertise, vast lender knowledge and relationships, and everyday market experience, enable us to customize financing for property ranging from $3 Million to $350 Million, including highly leveraged participating debt and joint venture equity.


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