FINfacts™ – XXIV No. 178 | July 31, 2019

MARKET RATES
Prime Rate 5.50
1 Month LIBOR 2.23
6 Month LIBOR 2.19
5 Yr Swap 1.78
10 Yr Swap 1.95
5 Yr US Treasury 1.82
10 Yr US Treasury 2.01
30 Yr US Treasury 2.58

RECENT TRANSACTIONS
$55,000,000 of Permanent Financing for 218,000 SF, Grocery-Anchored Center; Ventura, CA

Rate: 3.87% Fixed for Entire Term
Term: 10 Years
Amortization: Full-Term Interest Only
LTV: 65%
Guarantee: Non-Recourse
Lender Fee: Par
Prepayment: Defeasance

Overview:

George Smith Partners arranged $55,000,000 of long-term debt for a grocery-anchored mixed-use center located in Ventura, CA. The 218,000 square foot property is currently 97.5% occupied and is anchored by Ralphs, CVS, and LA Fitness. Proceeds were used to refinance the existing debt which was comprised of both senior and mezzanine debt and gave the Sponsor ample reserves for capital expenditures and future leasing costs. The non-recourse financing was sized to 65% of value and has a fixed rate of 3.87% for the life of the loan. GSP was also able to negotiate interest only for the entirety of the 10-year term.

Challenges:

While a majority of the center is retail, the collateral also includes second-floor office space. There were concerns about the leasability of the office suites and depth of the market in regard to future tenants. A portion of the Property is subject to a ground lease with a utility company. The ground lease expires in 13 years, 2032. It encompasses part of the parking lot which had the potential to affect our parking ratio in the event the Sponsor forfeited the collateral. In addition, our full-term interest only was subject to a 65% loan-to-value stipulation.

Solutions:

Apprehension over the desirability of the office space was mitigated by showing that the average tenancy of the current office users at the center is over 10 years. This helped to convince the Lender that there was little chance of multiple tenants vacating in succession. While the ground lease expires in 2032, GSP highlighted the fact that the ground lessor is a utility company that should be amenable to future extensions. In discussing with zoning experts, the parking ratio without that portion of the center was determined to be sufficient. By leaning on the Sponsor’s long history with the asset and best-in-class property management, GSP was able to support a value that came in under the 65% LTV threshold, which maintained the interest only component of the financing for the full 10-year term.

Advisors

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

$13,600,0000 Bridge to Stabilization Financing for a Newly-Built 75 Unit Multifamily Property; Ontario, CA

Rate: Floating at 1 Month LIBOR + 2.50%
Term: 2+1
Amortization: Interest Only
Fees: 0.5% in/0% out
Prepayment Penalty: None
LTC: 75%
Guaranty: Recourse

Transaction Description:

George Smith Partners placed $13,600,000 in bridge financing on a newly constructed 75 unit multifamily property in Ontario, CA, shortly after the Property obtained it’s certificate of occupancy. Due to construction cost escalation, which has been a pervasive industry challenge, the Sponsor incurred significant cost overruns during the course of construction. This resulted in a large number of mechanics liens filed on the Property as well as open trade payables and a lender that was threatening to file a notice of default. To further complicate matters the construction lender was an esoteric form of bond financing with a very narrow payoff window. Failure to repay within the window would result in significant penalties. Property occupancy was less than 10% at the time of engagement.

By emphasizing the Property’s excellent location in West Ontario in close proximity to the airport and convention center as well as the submarkets strong fundamentals and low vacancy rate, GSP was able to source a lender who provided a fully funded loan representing 75% of total cost. The loan carries an interest rate of 1Month Libor + 2.50%, which is near institutional level pricing for a middle market sponsor and has no going in debt yield or DCSR requirements. The loan has a holdback for interest reserve so no additional out of pocket costs will be incurred for debt service. The loan term is 24 months and there is no prepayment penalty or exit fee, allowing the Sponsor to sell or refinance at stabilization at no additional cost. The loan closed in just 60 days from the signed application.

Advisors

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

$3,500,000 Pre-Development Non-Recourse Bridge Loan; San Fernando, CA

Rate: 7.50%
Term: 12 months
Amortization: Interest Only
Loan Fees: 1.0%
Guaranty: Non-Recourse
Prepayment Penalty: None

Transaction Description:

George Smith Partners placed the cash-out non-recourse refinance of an improved San Fernando Valley lot that had been vacated while the Developer moves forward on an up-zone re-entitlement. Our Sponsor will double the available units on this over-sized lot bringing needed housing to this dense in-fill tract. Proceeds beyond the existing payoff will be used to cover soft costs and will be invested back into the site development. The exit will be via a ground-up construction loan to be funded late 2019. Closing occurred within two weeks from executed application to funding. No appraisal was required for funding. Fixed at 7.50%, the non-recourse loan does not carry a prepayment penalty.

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
Paul Monsen
Vice President
Samuel Sarshar
Assistant Vice President

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HOT MONEY
National Portfolio Financing for Stabilized Assets with No Prepayment Penalties

George Smith Partners is working with a national portfolio capital provider structured with no pre-payment penalty.  Transactions in primary and secondary markets from $2,000,000 to $15,000,000 fixed for 5+5 and seven year terms.  This recourse lender will advance to 75% of appraised value assuming a 1.25 DSCR on in-place cash flow for income properties and offers a 30 year amortization.  Most loans close within 60 days and there is no minimum interest or prepayment penalties.  Application fees and bank closing costs (excludes 3rd party charges) are waived on new opportunities for the next three months.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Markets Roil on Expectations Unmet

Today’s quarter point rate cut (the first since 2008) was expected and already priced in to the markets. However, markets had priced in more than just one cut. During Fed Chair Powell’s press conference, equity markets plunged, reminiscent of the 2013 Taper Tantrum. Why? Fed Chair Powell strongly implied “one and done” by stating that this is a “mid-cycle rate adjustment”, as opposed to one in a series of rate cuts. The prospect of no more rate cuts this year sent markets reeling. It seems that asset values are very likely overpriced and the thought of pricing “mark to market” spooked markets that are clinging to the punchbowl and hoping that another rate cut is forthcoming. The 10-year Treasury closed at 2.01% and the 30 day LIBOR is at 2.23%. 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 at (310) 867-2995 or taugust@gspartners.com


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