FINfacts™ XXIV – No. 152 | January 30, 2019

MARKET RATES
Prime Rate 5.50
1 Month LIBOR 2.50
6 Month LIBOR 2.82
5 Yr Swap 2.58
10 Yr Swap 2.71
5 Yr US Treasury 2.48
10 Yr US Treasury 2.68
30 Yr US Treasury 3.04

RECENT TRANSACTIONS
$12,790,000 Non-Recourse Acquisition Bridge Financing to Reposition a 120,000 Square Foot Retail Center in Phoenix, Arizona

Rate: Floating at 1 Month LIBOR + 4.25% (6.75% today)
Term: 2 Years with 2 One Year Extensions
Amortization: Interest Only
LTC: 80%
Guarantee: Non-Recourse

Transaction Description:

George Smith Partners secured $12,790,000 in non-recourse acquisition bridge financing for the heavy reposition of a 1980s vintage shopping center in the Paradise Valley submarket of Phoenix, Arizona. The value-added property had a vacating grocery anchor tenant, low occupancy rates and below market rents. The Sponsor’s business plan was to acquire the asset with a fitness tenant anchor in tow and then reposition and stabilize the remainder of the center.

Sized to 80% of total project cost, the loan includes a future funding facility to cover tenant improvements, leasing commissions and capital expenditures. The rate floats at 1 Month LIBOR plus 4.25% (approximately 6.75% today) and carries a two year term with two one year extension options. Interest is not charged on the holdback until funds are drawn. The Lender was able to accommodate several changes to the business plan throughout the application process. This included relocating several existing tenants within the center due to a conflict presented in existing tenant leases.

Advisors

Malcolm Davies
Principal/Managing Director
Zachary Streit
Senior Vice President
Evan Kinne
Senior Vice President
Alexander Rossinsky
Vice President
Rachael Lewis
Vice President
Aiden Moran
Assistant Vice President

$11,000,000 Cash-Out Construction Loan Take-Out; 75% LTV

Rate: Fixed for five years @ 5.0% Re-set 5 year CMT+2.25%
Amortization: 30 years
Origination Fee: ½ point
DCR: 1.25
Recourse: Limited to 20% of the ownership stack
Prepayment Penalty: None

Transaction Description:
George Smith Partners placed the $11,000,000 take-out of a single-tenant office build-to-suit leased for 10 years to an investment grade GSA tenant located in a secondary Southern California market. The tenant, a Children’s and Family Services office had required security upgrades in the building design and construction. Sized to a 1.25 DCR, loan proceeds netted 80% of the total development cost allowing for a partial recapitalization of Sponsor equity beyond the construction loan. The loan was funded less than two weeks post certificate of occupancy issuance but prior to the tenant opening for operations. Fixed for five years at 5.0%, the loan will reset for the second five year term at the CMT+2.25%. There is no pre-payment penalty.

Challenges:
This capital provider traditionally seeks a personal repayment guarantee from at least 51% of the ownership stack. While the 20% GP would sign, none of the limited partners were available to guarantee. Interest rates moved up post application and the Sponsor sought to close as quickly as possible to preserve his applied for coupon. Although the tenant accepted the space and initiated rental payments, they opted to delay their opening date due to the pending holidays. Our permanent loan lender thus questioned if the property was in fact stabilized without an operating tenant. Security cost improvements were amortized into the ten-year lease.

Solutions:
A waiver was requested and granted that accepted a personal guarantee from the manager who holds 20% of the Borrower. Support from the investment grade tenant furthered the argument for this waiver. To mitigate stability concerns, the construction loan and loan finance costs were paid at funding. The return of equity will be distributed once the tenant is “doors open” and commences operations. Our underwriter reviewed the requirement for the security needs and understood the benefit of the guaranteed cash flow from the credit tenant. The capital adviser agreed to raise their LTV constraint from the applied for 67% LTV to 75% LTV. There was no reduction in loan proceeds.

Advisors

Jonathan Lee
Principal/Managing Director
Shahin Yazdi
Principal/Managing Director
David Stepanchak
Senior Vice President
Matthew Kirisits
Vice President
Olga Alworth
Senior Vice President
Samuel Sarshar
Assistant Vice President

Permanent Refinance for a Single Tenant Industrial Building in Los Angeles, CA

Rate: 5.15% fixed
Term: 10 Years
Amortization: 25 years
Loan to Value: 54%
DSCR: 1.25X
Prepayment: Modified Yield Maintenance
Guarantee: Recourse
Lender Fee: 0.25%

Transaction Description:
George Smith Partners successfully placed the $1,500,000 refinance of a 22,250 SF single-tenant industrial building in Los Angeles, California. The Property is well located near USC, minutes from the LA garment district and Downtown LA.

Challenges:
The single tenant is a non-credit private label garment manufacturer and the lease is short term expiring in approximately one year. The Property was built in the 1950s, and the contract rent is below market due to functional deficiencies such as clear height and parking spaces as compared to neighboring inventory. Based on the current rent, the Property doesn’t cash flow in the Lender’s credit review.

Solution:
GSP utilized its extensive market expertise and strong lender relationships to identify a capital provider willing to provide a 10-year fixed loan without TI Holdbacks or a Leasing Commission reserve. The Lender allowed an early rate lock at application, insulating the Borrower from rising interest rates. Priced at 5.15% for the 10-year term, the fixed loan was sized to 54% of value, with a 25-year amortization.

Advisors

Gilda Rivera
Senior Vice President
Irene Liu
Assistant Vice President

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HOT MONEY
National Specialty Bridge & Ground-Up Construction Lender to 80% of Capitalization

George Smith Partners is working with a national provider funding fixed and floating rate bridge loans from $7,000,000 to $65,000,000 and pricing between 600-900 over LIBOR on a non-recourse basis. With terms from 12-36 months, this lender has the ability to advance 80% of purchase price for new acquisitions, renovations, restructuring, partnership buyouts, construction and special situations. Asset types include Multifamily, Office, Retail, Industrial, Warehouse, Mixed Use, Manufactured Housing, Self-Storage, Senior Housing, Student Housing, Medical Office and Commercial and Residential Land.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
“Patience” is a Virtue

The Fed’s unanimous decision to not raise rates today and subsequent comments from Fed Chair Powell set markets soaring. The “contrarian” dynamic is alive and well: The Fed delivered “bad” news (the case for raising rates has “weakened” due to global growth concerns such as Brexit, China’s economic slowdown, etc.) and markets cheered as that will keep rates from rising. Interestingly, the Fed asserted its independence, denying they are bowing to political pressure and insisting these moves are “data dependent”. An unprecedented separate statement on the balance sheet seemed to be a nod to the market concern that “quantitative tightening” (the gradual selloff of Fed assets such as Treasuries and Mortgage Securities) is not on “autopilot” but is also data dependent. Futures markets now predict no new rate increases this year and even a rate decrease for next year. The 10 year yield dropped to 2.67%, nearing its recent bottom of 2.56%….Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

More Perspectives ›

If you have an inquiry regarding George Smith Partners’ commercial real estate financing, please contact your GSP representative or Todd August, Chief Operating Officer (310) 867-2995 or TAugust@GSPartners.com


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