Rate: Prime + 0.75%
Term: 18 Months with one 6 month extension Lender Fees: 0.75%
Amortization: Interest Only
Prepayment Penalty: None
George Smith Partners placed $2,180,000 in construction financing for a spec single family property in the upscale Cheviot Hills submarket of Los Angeles. The Sponsor’s business plan was to expand and redevelop the existing property into a 5,900 square foot spec luxury single family property. The challenges on this transaction included the need for maximum proceeds (75% loan to cost) and a sponsor embarking on its first ground up development project. Most lenders struggled given these challenges. However, after an extensive marketing effort, George Smith Partners sourced a lender that was comfortable with the leverage request. Given the Sponsor’s limited track record, a completion guarantee from the Sponsor’s general contractor was required, which GSP successfully negotiated. Sized to an aggressive 75% of total cost, the interest only loan is freely prepayable and will float at 0.75% over the WSJ Prime for 18 months.
Senior Vice President
$14,050,000 Acquisition and Reposition Financing, 89% LTC (4.90% blended coupon) on a 79-Unit, Mixed-Use Apartment and Retail Project; St. Louis City, Missouri
December 2, 2020
George Smith Partners successfully placed $14,050,000 in construction financing, which funded 89% of total project cost, for the acquisition and reposition of a 79-unit, mixed-use property in a desirable and historic St. Louis City neighborhood. GSP was engaged by the Borrower when its original lender, a national REIT, was forced to re-trade the Borrower on loan terms due to the COVID-19 pandemic. Upon being engaged, GSP was able to source the replacement debt and equity in time to close the transaction without a material delay. The financing structure included a senior loan to 81% loan-to-cost and a preferred equity investment with last-dollar exposure to 89% of total project cost with a 4.90% blended cost of capital. GSP leveraged its expertise of the St. Louis market, long-standing lender relationships, and capital markets creativity to achieve the Borrower’s goals of minimizing cash equity invested into the Project so that it can keep a substantial cash reserve to pursue additional projects which are expected to present themselves during the COVID-19 pandemic.
Term: 36-months with one, 12-month extension option
Amortization: 24-months interest only, 25-year amortization thereafter
Guaranty: Full repayment guarantee (on senior loan only; does not apply to the non-recourse preferred equity investment)
Lender Fee: 50bps
The Next Generation of Co-Living: $14,100,000, 65% LTC Construction Loan for Co-Living Project; Los Angeles, CA
October 28, 2020
Transaction Description: George Smith Partners placed the $14,100,000 construction to perm loan for an 86 micro-unit, co-living development located in an opportunity zone for an institutional sponsor and a national private equity firm. Optimized to provide a complete living experience with full in-unit accommodations on shorter term leases, the Project represents the first of its kind in the Los Angeles market. The 65% construction loan converts to a 5-year mini-perm loan fixed at 4.5%, synergizing with the Borrower’s long-term strategy and maximizes the opportunity zone benefits by eliminating future financial risks.
Challenges: The Project was heavily scrutinized due to COVID-19 and the concerns of close quarter living. Additional concerns arose from a macro level as the nation began to see an exodus from large cities. As further stress was placed on the underwritten income, the capital markets were struggling to find the last dollars needed. Additionally, many platforms had already largely paused construction lending, let alone found the risk tolerance to push leverage back to pre-lockdown levels. Finally, the Project is situated in an opportunity zone and the unique capital structure remains a relatively new concept for most lenders.
Solutions: GSP’s main objective was to secure a lender that was comfortable waiving underwritten DSCR and LTV requirements. It was also critical that the Lender would understand the intricately designed structural advantages the Project offered and how the product differentiated from everything else currently on the market. We further showcased that the Sponsor was of institutional pedigree, including their partnership with a national private equity group that specialized in opportunity zone investments and experience being among the most tenured co-living developers in the US.
September 30, 2020
George Smith Partners secured a $4,690,000 construction loan with a 2-year term that converts to a 5-year permanent loan upon completion of construction for a total term of 7 years. The loan is for a medical office building in Oxnard, CA. The construction loan floats at Prime plus .5% with a floor rate of 3.75% and the mini perm is expected to have a fixed interest rate of 3.65%. The mini-perm carries a step down prepayment, but there is no prepay during the construction term, allowing the borrowers to secure more advantageous capital depending on the capital markets.
The Sponsorship sought long term construction-to-fixed capital shortly after the government-mandated shelter in place which caused significant disruption to the CRE capital markets. GSP needed to secure a high leverage loan to complete the ongoing construction of the Project which had commenced in 2019. With active construction on the Project, GSP needed to secure a lender capable of understanding various lien priorities, a historic building designation that changed construction plans and timelines, vandalism, and a change of general contractors all during the COVID-19 pandemic.
GSP was able to demonstrate the necessity of new medical offices during the height of the shutdown to generate a competitive lending environment, and to secure the 70% LTV construction loan. To reduce valuation risk, GSP negotiated that the existing appraisal performed pre-COVID would be utilized by the selected lender. To obtain maximum proceeds, GSP also worked with the Lender to collateralize adjacent unentitled land owned by the Sponsorship. The vandalism and the historic designation caused delay. However, GSP showed that the change in the GC was a strategic move that would allow for the completion of the construction and the ability of the sponsorship to obtain C of O in early 2021. This will allow the Sponsorship to hold the completely modernized Medical Office building with a fixed low rate through 2027.
$31,500,000 Construction Financing to 72.5% LTC for a 240-Unit Workforce Housing Project; Sheboygan, WI
September 23, 2020
George Smith Partners successfully placed $31,500,000 (72.5% LTC; 70%LTV) in construction financing to fund the ground-up development of a 240-unit, workforce housing project in an infill neighborhood of tertiary market, Sheboygan, Wisconsin. GSP leveraged its diverse lender relationships to source a construction loan for this large project located in a small market during the peak of the COVID-19 pandemic. GSP was able to focus lenders on sponsorship quality and how the project was tailored to take advantage of Sheboygan’s strong market fundamentals. This includes an insatiable demand for workforce housing driven by numerous manufacturers being in the county including Kohler, Sargento, and Johnsonville among others. A Tax increment financing (TIF) district was created to offset a portion of the Project’s costs, which added another layer of complexity as GSP was directed to source a lender that would also underwrite the projected TIF cashflows to increase the construction loan leverage.
Term: 48 months
Amortization: 32-months interest only; 27.5-year amortization thereafter
Prepayment: None; open in whole or in part at any time
Guaranty: Full repayment guarantee that burns down to a 50% repayment guarantee upon certificate of occupancy
September 16, 2020
George Smith Partners placed a $11,700,000 construction loan to build a logistics yard that includes trailer parking, auto parking and a maintenance facility. The fenced and secured facility is being built on a speculative basis although there is unmet demand.
The marketing of the asset during the COVID-19 pandemic was difficult given bank resources first went to asset management and then PPP. The lenders in the market wanted “easy” deals such as low leverage multifamily, build to suits and infill industrial. The Sponsor’s expertise, market knowledge and demand for the product created a competitive lending environment. After talking to over 50 capital providers we had three compete for the loan. Structure, pricing, certainty of execution and speed to close narrowed the lender choice. The chosen Capital Provider went to full credit committee before issuing the application given the specialty nature of the asset. The credit committee also approved all terms negotiated/changed in the application before the process began. This gave us confidence that the chosen Capital Provider would execute on the original terms in the application while other Capital Providers have altered terms during the COVID-19 pandemic.
May 20, 2020
George Smith Partners successfully secured a high leverage $21,700,000 non-recourse, Construction-to-Perm loan to develop a six-building, 966-unit, climate controlled, Class-A self-storage facility near Stevenson Ranch in the Santa Clarita Valley, California.
The Sponsor, while very experienced in other asset classes, engaged GSP to source the full capital stack (debt, equity and carve-outs guarantor) for his first self-storage project. New Building & Safety codes that took effect in 2020 resulted in increased costs and delays. In order to obtain certified pads by the end of 2019, the entitlements in-place had to be vetted and the horizontal work needed to start prior to securing construction financing. The impacts of Covid-19 resulted in multiple delays from subcontractors, County inspectors, and in pulling permits due to County offices being closed.
GSP was able to source an investor from its pool of strong relationships who provided the equity. GSP focused on the market necessity for storage units in the desirable and growing community of Santa Clarita Valley, and successfully negotiated an agreement with Public Storage to operate the facility. GSP identified a capital provider to not only extend the financing commitment multiple times, but also to execute a structured, non-recourse, low-rate loan with the same terms agreed upon prior to Covid-19.