FINfacts™ XXIV – No. 157 | March 6, 2019

MARKET RATES
Prime Rate 5.50
1 Month LIBOR 2.48
6 Month LIBOR 2.68
5 Yr Swap 2.57
10 Yr Swap 2.70
5 Yr US Treasury 2.51
10 Yr US Treasury 2.69
30 Yr US Treasury 3.07

RECENT TRANSACTIONS
$15,000,000 Full Cash Out Permanent Financing for a Single-Tenant Industrial Warehouse; Los Angeles, CA

Rate: 4.78%
Term: 5 years fixed
Amortization: 25 years
Loan to Value: 60%
Prepayment: 1-Yr Locked, 3-2-1, Last Year Open at Par
Guarantee: Non-Recourse

Transaction Description:
George Smith Partners secured $15,000,000 of cash out refinancing of a single-tenant distribution warehouse in West Rancho Dominguez, an unincorporated portion of Los Angeles County. This was a permanent, non-recourse loan at 4.78% fixed for 5 years with 25 years amortization. The flexible prepay, which is non-typical of Life Co’s yield maintenance, was very appealing to the Borrower (locked for 12 months, 3-2-1, then open at par for the last 12 months).

Challenges:
Full cash out with $15,000,000 in proceeds for a foreign borrower who built this property in 2008 for less than $9,000,000. The existing single-tenant is a privately-owned entity that is “non-credit” with its lease rolling in less than 4 years without extensions. The in-place rent is currently 30% below market which limited other loan proposals between $9,000,000 and $11,500,000 in max proceeds.

Solutions:
George Smith Partners worked with an existing life insurance company lender relationship that was able to provide a structured permanent loan solution by underwriting to market rental rate rather than the in-place income. This made the loan metrics work for the Lender (8.6 Debt Yield & 1.26 DCR). These assumptions were in turn verified and confirmed by a national appraisal firm.
The Asset is relatively new construction and considered a class-A property. Furthermore, the Los Angeles County industrial market is supply constrained which makes this asset category one of the most appealing in CRE today.

Advisors

Antonio Hachem
Principal
Wendy Wang
Vice President

$7,600,000 in Non-Recourse Permanent Financing for a Single Tenant Medical Office Property with 100% Lease Roll During the Loan Term

Rate: 5.12% Fixed (Spread of 242 basis points over 10 Year Swaps)
Term: 10 Years
Amortization: 30 Years
LTV: 65%
Prepayment: Defeasance
Guarantee: Non-Recourse

Transaction Description:

George Smith Partners secured $7,600,000 in non-recourse permanent acquisition financing for a 38,000 square foot medical office property in Lowell, Massachusetts. The Property was 100% leased to a single tenant with strong credit but with only five years of remaining lease term. Despite the limited lease term, the Sponsor sought long term permanent financing that exceeded the lease term, which is difficult to obtain.

After an extensive marketing effort, George Smith Partners sourced a national lender with a favorable view of medical office properties and a history of providing permanent financing on properties with significant near term lease roll. Sized to 65% of value, the 10-year fixed-rate execution is non-recourse and amortizes over 30 years. The interest rate was fixed at 5.12% at closing or 242 basis points over the 10 Year Swap Rate.

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

$4,250,000 in Permanent Financing for a Four Property Assemblage in Glendale, CA

Rate: 5.15% Fixed
Term: 10 Years
Interest Only: 3 Years
Amortization: 30 Years
Prepayment Penalty: Stepdown, 10-1%
LTV: 60%
DCR: 1.30x

Transaction Description:

George Smith Partners arranged $4,250,000 of permanent financing for a four-property mixed use located in Glendale, CA. The portfolio totals 25,000 square feet and is 100% leased to a variety of technology-based tenants. The non-recourse financing accomplished the Sponsor’s business plan to refinance an existing loan on three of the properties while adding another parcel to the collateral. The properties are nearly contiguous within a two block area. GSP arranged the original bridge and then perm financing on the original properties in 2013-2015. The existing lender waived prepayment for the existing loan in order to underwrite the new financing. The 10-year permanent loan is sized to 60% LTV and has a stepdown prepayment structure. It includes three years of interest only followed by a 30-year amortization and carries a fixed rate of 5.15% over the life of the loan.

Advisors

Steve Bram
Principal/Co-Founder
David R. Pascale, Jr.
Senior Vice President
Patrick O’Donnell
Vice President

SPEAKERS CORNER

Please join Malcolm Davies, Principal/Managing Director – Equity at George Smith Partners, and other top-level industry leaders on Thursday, March 14th for Bisnow’s Los Angeles Hotel Summit. Mr. Davies will participate on the panel discussion, Hotel Investment, Finance & Development: How are Dealmakers Making Decisions in LA’s Hospitality Market? Use the discount code GSP202CCPR for 20% off the price of admission. For more information about the conference, click here.


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HOT MONEY
Homebuilding & Residential Development Equity

GSP is working with an established equity source with a nationwide platform offering joint venture equity, preferred equity and mezzanine financing. Product types include for-sale homebuilding (single family, townhouses, condos), land development, build-to-rent and other residential related investments. The capital group is currently seeking opportunities with experienced builders and developers. Target investments range from $8M per deal and $25M programmatic joint ventures.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
The “Old Normal” Remains Elusive – ”Not so Fast Taking That Punchbowl”

The plan was simple: central banks injecting massive liquidity into the system to bring the world out of the post crash doldrums.  The Fed’s dual mandate of low inflation and high employment would eventually force its hand as low unemployment would lead to increased wages and inflation (aka: a hallmark of the “Old Normal” called the Phillips Curve which posits a “stable and inverse” relationship between inflation and unemployment). During the past few years, it seemed like this scenario was taking hold as the Fed was telegraphing multiple rate increases, the ECB was winding down their stimulus, wage inflation was finally stirring, etc. But, recent developments indicate a slowdown in growth (recent forecasts for China, the US and Europe all trending lower), low inflation (the Fed’s inflation gauge, PCE, remains below the 2.0% target and oil prices unable to sustain recent gains) and very low unemployment still not moving wages significantly, especially for the low wage earners. 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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