FINfacts™ XXIV- No. 81 | August 16, 2017

MARKET RATES
Prime Rate 4.25
1 Month LIBOR 1.23
6 Month LIBOR 1.45
5 Yr Swap 1.86
10 Yr Swap 2.18
5 Yr US Treasury 1.79
10 Yr US Treasury 2.23
30 Yr US Treasury 2.84

RECENT TRANSACTIONS
80% Loan-to-Value, $11,250,000 Refinance of a 44% Occupied Retail Center Shadow Anchored by an Independent Grocery Chain

Rate: 30-Day LIBOR + 4.75%
Term: 24-month initial term plus two 12-month extension options
Amort: Interest only (initial term)
LTV: 80% as-is, 75% as-stable
Prepayment: 15-month spread maintenance
Lender Fee: 1%
Guaranty: Non-Recourse

Transaction Description:
GSP successfully placed $11,250,000 in non-recourse, floating-rate bridge debt on a 44% occupied, but 97% leased, 1960’s vintage Salt Lake City metro multi-tenant retail property. Although the property was only 44% physically occupied at loan application as a result of a planned re-tenanting program, the borrower recently executed two leases with large-format retailers that will bring occupancy to 97%. GSP identified a lender comfortable with the story behind the property’s 1) low physical occupancy at time of application, 2) grocery shadow anchor, 3) temporary tenants paying below-market rent during transition period, and 4) lack of supporting sale comps for the market. The short-term bridge loan was sized to 80% of as-is value, 75% of stable value, and included future funding to cover 100% of lease-up costs with interest not paid on unfunded proceeds until drawn.

Advisors

Nick Rogers
Vice President

$4,500,000 Acquisition Bridge Financing for the Condominium Conversion of a Historically Designated Trophy West Hollywood Apartment Building

Rate: Prime +.50% (4.75% Today)
Amort: Interest Only
Term: 18 Months with one 6 Month Extension for a 0.15% Lender Fee
LTC: 64%
Partial Release Provision: 125% of Par
Prepayment Penalty: None
Lender Fee: 0.35%
Guaranty: Recourse

Transaction Description:
George Smith Partners arranged $4.5 million in bridge financing for the acquisition and condominium conversion of Patio del Moro, a seven-unit, historically designated trophy apartment property located in the heart of West Hollywood just one block south of the Sunset Strip. The sponsor’s business plan contemplates converting the apartment property built by famed developers Arthur and Nina Zwebell in their signature Spanish Courtyard style into a condominium complex and selling off units individually as condominiums to end users. This transaction was structured with a $3,500,000 initial advance and a $1,000,000 holdback with no negative arbitrage for condominium conversion fees, property rehab and interest reserve. Sized to 64% of total cost, the bridge loan is interest only and floats at Prime plus 0.5% for its 18-month term. The loan carries no prepayment penalty. Partial releases are subject to a 125% of par pay down and are not subject to a full cash flow sweep. The lender fee was a low 35 basis points.

Challenges:
West Hollywood is among the most challenging submarkets for re-entitlement in all of Southern California. Moreover, the property is historically designated, adding an additional layer of required approval, and is under-parked based on current condominium parking requirements. The project is also one of the first condominium conversions to occur since the Great Recession, so there is no recent precedent to fall back on. Finally, the project’s total cost is estimated at $7,000,000 equating to a high basis of $1,000,000 per door.

Solution:
George Smith Partners compiled a sales survey demonstrating robust demand for high priced condominiums in West Hollywood and surrounding areas, including recent sales in other Zwebell projects that were condominium converted over a decade ago. Moreover, George Smith Partners also highlighted the sponsor’s significant condominium conversion and real estate investment experience outside of Southern California. By demonstrating these items and leveraging its extensive capital markets relationships, George Smith Partners was able to identify a low cost capital provider that was comfortable with the deal’s entitlement risk and high basis per door.


Picture
HOT MONEY
Tighter Spreads on Bridge Debt for Transitional Assets

GSP is originating bridge loans $25,000,000 and up for a balance sheet lender starting at LIBOR plus 3.50%, up to 80% LTV for multifamily, retail, industrial, office, and hospitality.  The lender will focus on value add transitional assets with sponsors with a proven track record.  Transitional assets located in good locations in primary and secondary markets throughout the U.S. will be considered.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Treasury Yields Drop on Fed Minutes Inflation Chatter, Lowered Expectations from Washington

Looks like the Fed is starting to accept the “new normal.”  Today’s release of Fed notes from the July 17 policy meeting indicate that the policy setters “saw some likelihood that inflation might remain below 2% for longer than they expected.”  The Fed has been clinging to “classic” economic theory (pre-crash) that dictated that full employment leads to inflation (especially wage inflation, which is part of the Fed’s stated mission).  Now, after a period of describing low inflation readings as “transitory” or “seasonal”, reality is setting in that wages are not rising as planned.   Much of this may have to do with generational factors and other macro structural changes in the post crash economy.  Low inflation may be a secular reality.   The minutes release combined with today’s mass defections and disbanding of the Manufacturing Council and Strategic Policy Forum (indicating more Washington dysfunction) caused investors to assume a more gradual pace of rate hikes and no growth inducing fiscal policy.  Stay Tuned.  By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

More Perspectives ›

WWW.GSPARTNERS.COM

Constellation Place
10250 Constellation Blvd., Ste. 2700
Los Angeles, CA 90067
Office 310.557.8336
Fax 310.557.1276
Email finfacts@finfacts.net
© 1999 - 2024 George Smith Partners, Inc. DRE # 00822654 FINfacts is an ePublication of George Smith Partners, Inc. For Promotional Purposes Only. All Rights Reserved.
Hi, just a reminder that you're receiving this email because you have expressed an interest in George Smith Partners. Don't forget to add finfacts@gspartners.com to your address book so we'll be sure to land in your inbox!