FINfacts™ XXIV – No. 162 | April 10, 2019

MARKET RATES
Prime Rate 5.50
1 Month LIBOR 2.48
6 Month LIBOR 2.63
5 Yr Swap 2.30
10 Yr Swap 2.44
5 Yr US Treasury 2.27
10 Yr US Treasury 2.46
30 Yr US Treasury 2.89

RECENT TRANSACTIONS
Non-Recourse Permanent Financing for Downtown Detroit Boutique Hotel

Proceeds: Confidential
Rate: 5.7% Fixed for 10 Years
Term: 10 Years
LTC: 75%
LTV: 50%
Lender Origination Fee: None
Recourse: Non-Recourse

Transaction Description:
During the downturn our Sponsor identified a rundown non-operating hotel in downtown Detroit. Investing over $10 million in upgrades/renovations our Sponsor was able to create one of Detroit’s finest trendy boutique hotels and restaurants. From an extremely distressed site the Developer was able to open this 144 room boutique hotel that pays tribute to, “Made in Detroit”. The turnaround of the Property, led to a turnaround of the entire neighborhood.

Challenges:
Hotels are one of the most difficult property types to finance. Hotels outside major cities are even more challenging and Detroit hotels are the most difficult.

The result was that most capital providers refused to consider looking at the site. In addition, the Sponsor had the grand opening only about 18 months ago which caused many groups to be concerned about the ability to succeed long-term. Finally, non-recourse hotel financing is problematic because hotels are part real estate and part operating businesses.

Solution:
George Smith Partners successfully placed a non-recourse, senior loan which was securitized and sold to investors. GSP determined that by placing the loan within a Mortgage-Backed Securities pool, the overall strong yield would benefit the pool and the location risk would be minimized. With this structure, our Sponsor was able to buy out his partners and repay a personal loan he made to the Property. Because of our expertise in this type of financing, we were able to identify an international bank, which could speed up the process and work with the Sponsor’s attorney to navigate the complex issues of a securitized loan. With interest rates moving down at the end of the process we were also able to reduce the 6.05% floor rate by 35 bps and expand the amortization to 30 years. Within 35 days of going into application we were able to allow our Sponsor to buy out his partners, obtain a non-recourse loan that repaid an internal construction loan and close at better rate and amortization than originally quoted.

Advisors

Bryan Shaffer
Principal/Managing Director
Max Lehrman
Vice President
Ruben Bohbot
Assistant Vice President

75% Leverage, 4.95% Coupon Non-Recourse Permanent Financing for a Neighborhood Retail Center in a Tertiary Southwest Market

Rate: 4.95%, Fixed
Term: 10 years
Amortization: 1 Year Interest Only; 30 Year Amortization thereafter
Loan to Value: 75%
Prepayment: Yield Maintenance
Lender Fee: None

Transaction Description:

George Smith Partners successfully placed $15,000,000 of non-recourse, ten-year fixed rate first mortgage debt for the acquisition of an approximately 90,000 square foot, 1980’s vintage, 99% leased multi-tenant retail property. The anchor, a privately-owned regional grocer, occupies almost 50% of the collateral’s total square footage and has a lease expiration approximately concurrent with loan maturity. GSP sourced a lender able to achieve 75% leverage non-recourse financing plus one year of Interest Only payments despite the tertiary location and lack of access to the grocer financials. The loan was sized to the greater of an 8.65% debt yield or 1.30x debt service coverage ratio on the 4.95% fixed rate coupon.

Advisors

Gary E. Mozer
Principal/Co-Founder
Katie H. Rodd
Senior Vice President
Michael Anderson-Mitterling
Senior Vice President
Kyle Howerton
Senior Vice President
Akash Rohera
Assistant Vice President

$3,120,000 for Purchase of 30,000 SF Office Property in the San Fernando Valley; Non-Recourse Financing at 60% LTV

Rate: 4.85% fixed for 5 years
Term: 5 years
Amortization: 25 years
Prepayment Penalty: 3,2,1,0 with 5% principal annual repayment allowed
LTV: 60%
DCR: 1.30x
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners secured $3,120,000 in proceeds for the purchase of a 30,000 SF office building located in the San Fernando Valley. The Lender provided a Non-Recourse loan that was 60% of the purchase price at a rate of 4.85% fixed for five years.

A number of challenges were encountered while discussing the transaction with lenders. The tenants at the Property consisted of small businesses renting 1,000-2,000 SF suites, many of whom are under month to month (MTM) leases. This caused some concern about the stability of cash flow. The Seller’s historical P&Ls included many corporate and non-recurring expenses. Based on these P&Ls, several lenders quoted proceeds of just 50% of the purchase price. An environmental screen mandated a Phase II subsurface investigation.

GSP demonstrated that although some tenants were under MTM leases, they were long term occupants that had only converted to MTM when their lease expired. Overall, historical occupancy was very high because tenants like the unique features of the building. Additionally, our team demonstrated the Sponsor’s successful track record bringing operating expenses in line with typical office properties. As a result, the selected lender was able to underwrite to a normalized expense ratio. The Phase II report indicated that no remediation is required. The loan closed in about 60 days.

Advisors

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

SPEAKERS CORNER

Please join Malcolm Davies, Principal/Managing Director – Equity of George Smith Partners on Thursday, April 18th for the Crittenden National Real Estate Conference in San Diego.  Malcolm will be moderating the panel, Capitalizing Your Projects in Today’s Market – Utilizing Various Forms of the Capital Stack at 2:15 pm in Legends 2 located at the Hard Rock Hotel.  For more details, visit www.CrittendenNational.com

Please join Gary Mozer, Principal/Co-Founder of George Smith Partners, and other top-level industry leaders on Tuesday, April 23rd for the 13th Annual Real Estate Symposium at UCLA.  Gary will participate on the Opportunity Zone Panel at 6:00 pm.  For more information about the conference, click here.

For 20% off the registration price, enter the promo code GSP.  Click here to register.


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HOT MONEY
Non-Recourse Bridge & Mezzanine Financing up to 85% LTV

George Smith Partners is working with a national capital provider funding non-recourse bridge and mezzanine debt to 85% of value. The Lender offers flexible loan structures with interest only terms up to 6 years (inclusive of extension options) for transactions from $10,000,000 to $75,000,000. Floating rate pricing starts at LIBOR + 275. The Lender has a strong appetite for Multifamily, Office, Industrial, Retail and Hospitality properties located in primary, secondary and tertiary markets.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
“Static” Low Rates Bringing Borrowers Back to the Table

Several fixed rate lenders (agencies, Life companies, CMBS) have indicated that the recent drop in fixed rates is spurring increased activity in refinances and acquisition loans.    It’s another “perfect storm” as fears of a global growth slowdown and lack of inflation are keeping treasury rates low and a general “risk on” trade is contributing to relatively tight credit spreads.   Note that spreads have increased slightly in recent weeks in reaction to the lower index, but the increase is more than offset by the drop in Treasuries.   One of the main factors keeping Treasuries low is the abating fear of inflation.   Remember last November, when “inflation was coming back” and a 3.23% 10 year Treasury was just a signpost on the way to 4.00%?   That is now ancient history.   Today’s headline on the CPI report indicated 0.4% monthly headline inflation but markets focused on the 0.1% “core” number excluding the volatile food and energy sectors (but isn’t that the stuff everyone buys? Food and gasoline?)   Regardless the remaining core number may be slightly skewed lower due to new methodology on apparel prices.   The 10 year T is at 2.46%. 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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