Transaction Overview
George Smith Partners successfully placed the permanent refinance for a 34-unit Class A multi-family structure in the Westwood neighborhood of Los Angeles, south of Santa Monica Boulevard. The Sponsor constructed the property in 2006, and still had time prior to his existing loan opening to prepayment without penalty. The non-recourse loan was locked at application for 60 days at no cost or spread increase. Fixed for seven years at 3.158%, the first five years of the loan are interest only.
Challenge: Our Sponsor believed that interest rates were historically low and would climb prior to his loan opening to pre-payment without penalty. The Borrower wanted to understand at what point the prepayment/rate equation would be most beneficial to lock in current rates.
Solution: GSP produced an analysis that proposed current and future interest rate scenarios to determine potential costs of refinancing versus accepting interest rate risk or incurring the additional cost of an extended rate lock. An inflection point was found to exist by securing an early rate lock that allowed the prepayment to decrease over the two months required to complete the loan due diligence. The capital provider would have extended their rate lock beyond the 60 days (up to 9 months) at an additional cost of 3 basis points in spread. Our Sponsor benefited by locking in a low rate at application while his prepayment penalty amortized down during processing.
