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FINfacts™ XXIV – No 168 | May 22, 2019
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| Prime Rate |
 5.50 |
| 1 Month LIBOR |
 2.43
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| 6 Month LIBOR |
2.55 |
| 5 Yr Swap |
2.19
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| 10 Yr Swap |
2.33
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| 5 Yr US Treasury |
2.18
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| 10 Yr US Treasury |
2.38
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| 30 Yr US Treasury |
2.82 |
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Rate: 4.24%
Term: 10 Years, Fixed Rate
Amortization: Full Term I/O
LTV: 55%
Guaranty: Non-Recourse
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Transaction Description:
George Smith Partners successfully arranged the early index and rate lock for Orsini II, a 566-unit, institutional quality multifamily property located in Downtown Los Angeles. Orsini II is a mid-rise, over podium apartment complex comprised of five stories built over a three-level parking garage, walking distance to central downtown Los Angeles.
In 2016, GSP secured a $115,200,000 floating rate loan on the Property. Even though there were over 8 years of remaining term, due to last summer’s rapidly rising long term mortgage rates, the Sponsor decided to refinance with 10-year fixed rate debt to hedge further interest rate risk.
Challenge:
Locking in low interest rates in a rising interest rate environment and harvesting appreciated equity for future development opportunities meant that the Sponsor would have to incur pre-payment penalties on this early refinance. Additionally, the existing loan was locked-out from repayment until April 2019 which required securing a forward index lock and a deferred closing.
Solution:
While there was a 17 bps premium for the forward rate lock, GSP determined that the interest rate savings for a new 10-year loan would easily offset the early prepayment costs of the existing loan, as well as provide for the major cash out the Sponsor was seeking.
The $128,130,000, 55% LTV, fixed rate refinance funded in April 2019. The non-recourse, 10-year, interest only loan is fixed at 4.24%.
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Rate: Interest only 7.9%
Term: 2 years
LTV: 65% of Sale Value/90% Capitalized Value
Amortization: Interest Only
No Prepay
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Transaction Description:
GSP sourced a two year bridge loan on a small 50% occupied shopping center in Los Angeles for a family trust embattled in disputes for control of the asset. The loan was closed in 10 days, to prevent the sponsorship from filing for bankruptcy and provided capital needed to pay off creditors, buyout family members and allow one of the family members to hold the asset long term.
Challenges:
The estate heirs of the estate were involved in a two year lawsuit over control and over the same time period some of the major tenants moved out with occupancy dropping below 50%. The lawsuit created a need for cash and impacted the heirs’ credit. Between the credit and occupancy issues, it was impossible to find conventual financing. In addition, the lack of cashflow lowered the capitalized value of the property and the lawsuits were pushing the sponsorship into Bankruptcy.
Solution:
The Shaffer team at GSP understood the diverse family dynamics, the overall value of asset and developed the strategy to quickly payoff the current debt and provide cash out to pay all the debts and buyout family members. Using GSPs expertise in equity recapitalizations, we were able to work out the disputes between the partners/family members and arraigned a quick five day bridge refinancing. We demonstrated to the capital provider that the long term value of the asset was only 65% of value even though the loan was 90% of the property’s capitalized value. In the end, the loan provided capital to buyout the family members, settle all legal claims and allow one of the heirs to hold the shopping center long term.
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Rate: 9.9% Fixed
Term: 18 months w/one-6 month option
LTC: 76%
Recourse: Carve-Outs
Fees: 1.5%
Prepayment: Nine month minimum yield; no exit fee
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Transaction Description:
George Smith Partners placed the $3,000,000 acquisition loan for the purchase of an under-developed parcel in the Fairfax District of Los Angeles. Although improved with a pair of single family residences, the contract price assumes re-entitlement for residential development. GSP identified a non-institutional lender who underwrote the business plan assuming a re-entitlement for 30 rental units. Their exit will come from the pay-off funded by a to-be-identified construction lender upon re-entitlement. The non-recourse loan was sized to 76% of the contract price and is fixed for the 18 month term at 9.9%. There is one – 6 month option to extend.
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Please join Gary Tenzer, Principal/Co-Founder of George Smith Partners and other top industry professionals at the Bisnow – Los Angeles State of the Market event. Gary will moderate the 9:40 am discussion, “Where Does Investor & Tenant Demand Lie in the Market”? The event will take place at The Trust Building located at 433 South Spring Street on Wednesday, May 29th at 7:30 am. For more information, please click here. For 20% off the ticket price, enter the coupon code GSP20XCEA6.
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GSP is working with a capital provider that will provide recourse fixed rate financing to 75% of cost (90% + on build to suits) including, acquisition, improvements, development, pre-development, discounted payoffs, bankruptcy exit, purchase of notes and cash-out. Fixed rate pricing starts at 9% for terms up to 1 year with extension options up to 3 years for Multifamily, Office, Industrial, Retail, Special-Use, Entitled Land and Construction. Loan sizes range from $1,000,000 to $10,000,000 for transactions located in California, Arizona, Nevada, New Mexico and Washington.
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Today’s Fed Minutes release indicates Fed officials’ continued comfort level with the status quo on interest rates. It has the feel of a “victory lap” as rate policy, inflation and growth all seem to be in balance (for now). The minutes reveal the board’s feeling that there is less risk and uncertainty regarding Brexit, global economic outlook, etc. Note that the minutes were taken 3 days before the recent tariff escalations and breakdown in trade talks. With this new uncertainty (and some predictions of a long drawn out trade war with a permanent reordering of the relationship of the world’s two largest economies), a possible rate cut is more likely than an increase. Again the term “idiosyncratic factors” was used to describe the low inflation numbers, suggesting that there is a higher “normalized” inflation rate lurking in the data (but still not high enough to warrant Fed actions such as a rate increase). The 10 year T is at 2.39%. Now that indices have dropped and spreads remained tight, there has been an uptick in lending and issuance of debt backed securities (Fannie, Freddie, CMBS, CLO, etc). Spreads are widening slightly in the secondary market, but lenders competing for business are holding spreads tight, taking less margin for now. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
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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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Constellation Place
10250 Constellation Blvd., Ste. 2700
Los Angeles, CA 90067
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