Featured Financings
Recent Financings
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Debt Ceiling, Inflation Dilemma
September 12, 2019
With the debt ceiling solved (for 3 months anyway), a potential market calamity has been avoided (for at least 3 months, Happy Holidays). This week’s speech by Fed governor Lael Brainard indicated a reluctance to raise rates further until they are confident they can get past the “persistent failure” to reach their stated goal of 2.0% inflation. Last week’s PCE came in at 1.4%, down from 1.6% earlier in the year. It’s another sign that central banks are now trying to comprehend the “new normal” where the old model of the inverse relationship between interest rates and inflation is “broken” as years of accommodative policy has failed to increase prices. It’s interesting to note that this may indicate that its easier for central banks to quell inflation (by raising rates as the Fed did effectively periodically from the mid 1980’s until 2007) than increase inflation (by lowering rates). Two recent reports, one by Morgan Stanley and another by the Bank for International Settlements, shed some light on other factors including: (1) Aging populace in first world countries increasing savings; (2) Decline of labor unions (decreasing workers’ ability to demand pay raises), (3) Globalization (same effect as #2 and creating a “race to the bottom” for manufacturing costs); (3) Disruptive technologies (Uber, Airbnb, etc.) are eliminating middle men, increasing competition and forcing traditional companies to compete on price; (4) Amazon and other huge firms are concentrating on market share rather than profits; (5) Lower inflation expectations, i.e. a long period of low inflation leads to market participants (consumers, manufacturers) expecting tomorrow to be like today and yesterday. The Dallas Fed joined the “thinkfest” by announcing it is studying globalization’s affect on inflation. The 10 year T broke through a key technical level of 2.13% this week, dropping to 2.06% and is now at 2.10%. The flight to quality is still on as investors are watching the continued saber rattling with North Korea and the U.S. and the unquantified economic fallout from Hurricane Harvey and the approaching Hurricane Irma….stay tuned
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$3,155,000 Acquisition and Reposition Financing on 32-Unit Multifamily Property; Salt Lake City, UT
September 11, 2019
Transaction Description:
George Smith Partners arranged the $3,155,000 first mortgage on a 1970’s vintage, 32-unit multifamily light value add property. The national bank lender provided financing at 88% loan to purchase price and 70% loan to stabilized value. The seven year facility was structured as a fixed rate facility with a going in 1.00x DSCR. The loan was structured with two-year’s interest only for the stabilization period then converting to a five year permanent loan. The structure of the loan provided the sponsorship the ability to execute the stabilization of the property while maximizing proceeds and utilizing a fixed rate loan in order to mitigate their interest rate exposure.
Rate: 4.50%
Term: Seven years fixed (Two years interest only stabilization period converting to five year perm. loan)
Amortization: 24 months interest only, converting to 25 year amortization schedule Max Loan to Purchase Price: 88%
Guaranty: Recourse with burn down at stabilization metrics Lender Fee: 1.00% -
$11,760,000 Construction Financing to Develop a 14 Unit Small Lot Subdivision Project in the Silver Lake Submarket; Los Angeles, CA
September 11, 2019
Transaction Description:
George Smith Partners placed $11,760,000 in ground up construction financing to develop a 14 unit small lot subdivision project in the trendy Silver Lake submarket of Los Angeles, CA. The Project is extremely well located within Silver Lake and is walking distance to Sunset Junction. The per unit exit price is projected to represent a 30%+ discount to the cost of single family residences with similar footprints, offering an affordable alternative in an attractive and supply constrained market. Challenges included a sponsor seeking full leverage but requiring an extremely low interest rate, and many lenders refusing to offer competitive bids (or any bids at all) given the Project’s for-sale exit to homeowners.
GSP secured a capital provider that was comfortable with the Property’s central, urban location and the favorable per unit cost basis relative to both single family homes and the limited number of local competing condominium projects. The loan represents 72.5% of total cost and carries an interest rate of One Month Libor + 2.75%, which is near institutional level pricing for a middle market sponsor. The loan term is 24 months with two six month extensions. It allows for partial release of individual units without a prepayment penalty or exit fee, allowing the Sponsor to sell units at its discretion.
Rate: Floating at 1 Month LIBOR + 2.75%
Term: 2 Years with Two (6) Month Extensions
Amortization: Interest Only
LTC: 72.5%
Fees: 1%
Prepayment Penalty: None
Guaranty: Recourse -
5 Day Close on 84% Loan to Purchase Price for Multifamily Asset; West Hollywood, CA
September 3, 2019
Transaction Description:
George Smith Partners arranged a quick close acquisition bridge loan for an 8-unit property in West Hollywood. The Sponsor approached GSP with a need for 80%+ leverage, which can be tricky with low cap rates and rent control. GSP utilized their experience to arrange a first and second capital provider on the loan. We ensured that the Sponsor would receive his required leverage and guaranteed that he could close on the Property quickly. With this structure the owner can increase rents and stabilize the cashflow. This will allow him in the future to place a much larger permanent loan on the Property at a lower interest rate. Sized to 84% of purchase with no hold back requirement for interest reserve or capital expenditures, the loan carries a 12-month term, interest only payments at 8.5% and no prepayment penalty.
Rate: 8.5%
Term: 12 Months
Amortization: Interest only
LTV: 84%
Prepayment: None
Guaranty: Non-Recourse
Lender Fee: 1%- Advisors: Bryan Shaffer Max Lehrman Ruben Bohbot
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$11,450,000 in Permanent Financing for a 56 Hangar Private Airport; Torrance, CA
September 3, 2019
Transaction Description:
George Smith Partners secured $11,450,000 of life-company debt to refinance an existing senior loan for a regional private airport facility in Southern California. The Property is a 133,490 square foot, 10 building, 56 hangar private airport facility on a ground lease to the City of Torrance. The remaining term of the ground lease is only 23 years, which created limitations for the amortization of the senior loan. GSP worked with a lender that allowed for an amortization that equaled 80% of the remaining years of the ground lease. Loan proceeds repaid the existing senior loan, covered closing costs, and provided a return of equity to the Sponsor. The financing is an 18 year term loan that maximizes cash flow for the Sponsor. The recourse fixed-rate loan is priced at 4.75%.
Rate: 4.75% Fixed
Term: 18 years (fixed for the first 5 years, then rate adjusts)
Amortization: 18 Years
Loan-to-Value: 75%
Guaranty: Recourse
Prepayment: Yield Maintenance- Advisors: Steve Bram David R. Pascale, Jr. Nick Rogers
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$5,625,000 (75% LTV) for Acquisition of Development Site for 157 To-Be-Built Units; Koreatown/Los Angeles, CA
August 28, 2019
Transaction Description:
George Smith Partners secured $5,625,000 of combined senior and mezzanine financing for the acquisition of a mixed-use property located in Koreatown in Los Angeles. The Property is located on a desirable corner and currently has 6 apartments over approximately 10,000 square feet of retail. The Sponsor acquired the Property with the intention of constructing a 157-unit apartment tower on the site. The Project is already entitled for multifamily and will receive a density bonus due to its Tier 4 TOC status. Final plans and permits will be completed over the next 9-12 months prior to groundbreaking.
The senior and mezzanine lenders provided proceeds that were sized to 75% of purchase price. The interest rate was 8.39% and the total financing had a blended origination fee of 1.35%. The 18-month, non-recourse loans are co-terminus and will provide the Sponsor ample time to ready themselves for the construction. Both loans closed in under 30 days from application.
Blended Rate: 8.39%
LTPP: (Loan-to-Purchase Price): 75%
Term: 18 Months
Amortization: Interest Only
Guaranty: Non-Recourse
Blended Lender Fee: 1.35%
Prepayment Penalty: None, open to prepay immediately- Advisors: Steve Bram David R. Pascale, Jr. Patrick O’Donnell
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$6,500,000 7-Year Construction Loan 18-Unit Multifamily Project; 70% LTC; Prime + 0.75%; Culver City, CA
August 28, 2019
Transaction Description:
George Smith Partners secured a $6,500,000 construction loan for the development of an 18-Unit Class A apartment building located in the greater Culver City submarket of Los Angeles. The interest only loan is priced at Prime + 0.75% for the full 18-month term and includes a 6-month extension option. The proceeds represent 70% of the total project cost. The transaction also includes a 5-year mini perm option priced at the 5 Yr. Treasury + 2.15% with a 30-year amortization schedule, which can be exercised upon stabilization of the Project.
Challenges:
Although the Sponsor had previous experience as a general contractor this was his first endeavor as a developer and guarantor. His experience with this Class A asset type was limited and a significant portion of his net worth was tied to a startup technology company with limited operating history. The Sponsor also had a strict deadline he needed to adhere to as his construction permits were reaching their expiration date. Additionally, the construction costs and Sponsor cash equity fluctuated throughout the application process, which complicated the reconciliation of the closing statement and final loan amount.
Solutions:
GSP demonstrated that the Sponsor had chosen a capable general contractor to oversee the Project and helped structure a contract that gave the Lender confidence that the development would be completed. With respect to net worth, GSP procured ample evidence supporting the financial growth and stability of the startup. GSP prepared all required closing documents in a timely manner and provided a material portion of the due diligence prior to entering application in order to execute the transaction before the expiration of the Sponsor’s permits. GSP kept a diligent record of costs and equity invested to date. The Lender gave credit for this prior equity and reduced the Sponsor’s required down payment at close.
Rate: Prime + 0.75%
Term: 18 Months + 1, 6 Month Extension
Amortization: Interest Only
LTC: 70%
Guaranty: Recourse -
$6,000,000 Non-Recourse Refinance with Significant Cash-Out for 97-Unit Multifamily Property; Bellflower, CA
August 21, 2019
Transaction Description:
George Smith Partners successfully secured a $6,000,000 non-recourse permanent refinance of a 97-unit, 51,732 square foot multifamily property in Bellflower, CA. Loan proceeds were used to pay off the existing variable, higher interest rate loan into a lower interest, fixed rate loan. There was nearly $4,600,000 cash-out to the Sponsor, who had recently spent over $800,000 to complete full and partial remodeling of 62 units (64% of the total units). Thanks to GSP’s strong lender relationships, the Sponsor’s credentials and longevity of ownership, and extremely low leverage, GSP was able to source a lender that provided an additional $500,000 above the Sponsor’s initial funding ask, assumption rights in the event of a sale and no post-closing financial covenants for future successors.
Rate: 3.96% Fixed
Term: 15 Years
LTV: 35%
Guaranty: Non-Recourse -
$10,200,000 Cash-Out Refinance of a Historic All-Brick Building; Los Angeles, CA
August 21, 2019
Transaction Description:
George Smith Partners secured a $10,200,000 cash-out refinance of a 1920s-mixed-use brick building located in Los Angeles. In a growing movement to gentrify the area, this Property features both ground floor retail, and multifamily living. The cash-out refinance allowed our Sponsor to recapture the investment they made in upgrading and repositioning the Property. It is challenging for lenders to finance historic brick buildings and they have trouble getting their arms around mixed-use properties because of the potential risk they pose. GSP offered comfort to the Capital Provider by showing the significant improvements the Sponsor made to the Property, quantifying how retail will enhance the Property value as well as the benefits of being fully leased.
Rate: 4.05% fixed for five years
Term: 30 years
Amortization: Interest only
LTV: 75%
Prepayment: 1.75% 1-3 years, 1.00% 3-5 years
Guaranty: Non-Recourse
Lender Fee: 1%- Advisors: Bryan Shaffer Max Lehrman Ruben Bohbot
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$3,700,000 Bridge Financing for a Recently Completed Mixed-Use Development Office & Retail; Temecula, CA
August 14, 2019
Transaction Description:
George Smith Partners secured a $3,700,000 bridge loan to refinance an existing construction loan for a recently completed mixed-use development in Temecula, CA. The Property is a 14,939 square foot, 3-story office and retail commercial building located in the Old Town Temecula District. The spec development included the use of EB-5 equity in a tertiary market and required a lender who understood the Property’s unique location and ownership characteristics.
TERMS CONFIDENTIAL
- Advisors: Scott Meredith John Thrall
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75% Loan-to-Value Non-Recourse Financing for a Newly Redeveloped Two-Tenant Retail Property; Utah
August 14, 2019
Transaction Description:
George Smith Partners successfully placed $6,750,000 of non-recourse, ten-year fixed-rate first mortgage debt collateralized by a 3.36-acre parcel partially encumbered by a ground lease and improved with a 43,500 square foot retail box formerly occupied by a grocery store. The improvements are newly demised into two spaces 100% leased to a national crafts retailer and regional clothing store, and the collateral also includes two small pads ground leased to a local coffee shop and ice cream parlor. GSP sourced a lender comfortable with providing a 75% leverage permanent loan despite the absence of tenant sales history. Additionally, the Sponsor executed the ice cream parlor ground lease during financing diligence, and GSP worked with the Lender to increase loan proceeds (subject to a lender holdback until tenant opens for business) commensurate with the income attributable to this new lease even though the tenant had not yet built its premises at the time of loan closing.
Rate: 4.60% Fixed; coupon reflects 10-year Swap index as of December 2018
Term: 10 Years
Amortization: 30 Years
Loan to Value: 75%
Prepayment: Yield Maintenance
Lender Fee: None -
$3,500,000 Cash-Out Financing for Land on Melrose Ave and La Brea Blvd; Los Angeles, CA
August 7, 2019
Transaction Description:
George Smith Partners secured financing for a $3,500,000 loan on a former gas station at the corner of Melrose and LaBrea. The challenge was finding a bridge lender willing to lend on vacant land entitlement by-right for multi-family residential that will not commence construction for at least 18 months while also providing $500,000,000 in cash-out proceeds.
GSP was able to exceed the Sponsors expectation with respect to cash-out proceeds basing the loan on an updated appraisal which recognizes the site’s receipt of a Transit Oriented Communities (TOC)Tier 2 “up zoning” which occurred in 2017 after the land was acquired by the Sponsor and doubled the number of units that can be developed on the site. The 2 Year floating rate execution is a full recourse loan with a rate of L + 460 (7% floor) cash-out proceeds and a holdback for interest carry during the term of the loan.
Rate: LIBOR + 460 with 7% Floor
Term: 2 Years
LTV: 50%
Amortization: Interest Only
Yield Maintenance: None
Guaranty: Full Recourse- Advisors: Alina Mardesich Michael Smilove
