FINfacts™ XXIV – No. 182 | August 28, 2019

MARKET RATES
Prime Rate 5.25
1 Month LIBOR 2.12
6 Month LIBOR 2.04
5 Yr Swap 1.32
10 Yr Swap 1.37
5 Yr US Treasury 1.38
10 Yr US Treasury 1.47
30 Yr US Treasury 1.97

RECENT TRANSACTIONS
$81,500,000 Non-Recourse Bridge Loan for a 19-Story Multifamily Tower; Phoenix, AZ

All terms confidential

Transaction Description:

George Smith Partners successfully arranged $81,500,000 in non-recourse bridge financing for a 312-unit, 19-story luxury high-rise apartment tower in Phoenix, AZ. The Property is in the heart of Phoenix’s historic Roosevelt Row Arts District and features restaurants and retail on the ground floor, 7 levels of parking, a state-of-the-art fitness center and a rooftop pool overlooking the Phoenix skyline.

The financing was closed prior to the City issuing a final Certificate of Occupancy on the Property. Proceeds from the initial funding will be used to replace the senior construction debt and to finance the remaining construction. A future funding will retire the existing mezzanine construction debt as well as return cash equity to the Developer’s investor group.

GSP sourced and negotiated with a capital provider who became comfortable with the market, lack of project completion, and lease up risk at a high leverage point. Furthermore, the new Lender was very agreeable to the existing mezzanine lender’s requested intercreditor terms. By retiring the higher priced construction debt, the new bridge loan provides the Developer with additional term, substantial savings on interest, and exit flexibility during project lease-up.

Advisors

Scott Meredith
Senior Vice President
John Thrall
Assistant Vice President

$6,500,000 7-Year Construction Loan 18-Unit Multifamily Project; 70% LTC; Prime + 0.75%; Culver City, CA

Rate: Prime + 0.75%
Term: 18 Months + 1, 6 Month Extension
Amortization: Interest Only
LTC: 70%
Guaranty: Recourse

Transaction Description:

George Smith Partners secured a $6,500,000 construction loan for the development of an 18-Unit Class A apartment building located in the greater Culver City submarket of Los Angeles. The interest only loan is priced at Prime + 0.75% for the full 18-month term and includes a 6-month extension option. The proceeds represent 70% of the total project cost. The transaction also includes a 5-year mini perm option priced at the 5 Yr. Treasury + 2.15% with a 30-year amortization schedule, which can be exercised upon stabilization of the Project.

Challenges:

Although the Sponsor had previous experience as a general contractor this was his first endeavor as a developer and guarantor. His experience with this Class A asset type was limited and a significant portion of his net worth was tied to a startup technology company with limited operating history. The Sponsor also had a strict deadline he needed to adhere to as his construction permits were reaching their expiration date. Additionally, the construction costs and Sponsor cash equity fluctuated throughout the application process, which complicated the reconciliation of the closing statement and final loan amount.

Solutions:

GSP demonstrated that the Sponsor had chosen a capable general contractor to oversee the Project and helped structure a contract that gave the Lender confidence that the development would be completed. With respect to net worth, GSP procured ample evidence supporting the financial growth and stability of the startup. GSP prepared all required closing documents in a timely manner and provided a material portion of the due diligence prior to entering application in order to execute the transaction before the expiration of the Sponsor’s permits. GSP kept a diligent record of costs and equity invested to date. The Lender gave credit for this prior equity and reduced the Sponsor’s required down payment at close.

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
Paul Monsen
Vice President
Samuel Sarshar
Assistant Vice President

$5,625,000 (75% LTV) for Acquisition of Development Site for 157 To-Be-Built Units; Koreatown/Los Angeles, CA

Blended Rate: 8.39%
LTPP: (Loan-to-Purchase Price): 75%
Term: 18 Months
Amortization: Interest Only
Guaranty: Non-Recourse
Blended Lender Fee: 1.35%
Prepayment Penalty: None, open to prepay immediately

Transaction Description:

George Smith Partners secured $5,625,000 of combined senior and mezzanine financing for the acquisition of a mixed-use property located in Koreatown in Los Angeles. The Property is located on a desirable corner and currently has 6 apartments over approximately 10,000 square feet of retail. The Sponsor acquired the Property with the intention of constructing a 157-unit apartment tower on the site. The Project is already entitled for multifamily and will receive a density bonus due to its Tier 4 TOC status. Final plans and permits will be completed over the next 9-12 months prior to groundbreaking.

The senior and mezzanine lenders provided proceeds that were sized to 75% of purchase price. The interest rate was 8.39% and the total financing had a blended origination fee of 1.35%. The 18-month, non-recourse loans are co-terminus and will provide the Sponsor ample time to ready themselves for the construction. Both loans closed in under 30 days from application.

Advisors

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

Pascale's Portrait
PASCALE'S PERSPECTIVE
Treasury Yields Near All Time Lows, Sentiment is Diverging From the Data

The 10 year Treasury is now at 1.46%, just 10 bps above the all-time low (summer 2016). The bond market continues to ignore U.S. economic reports and concentrate on global fears. Remember when positive Consumer Confidence and Durable Goods reports would drive yields up? Those days are in the rear view mirror as the markets are “obsessed” with gloom on the horizon. US/China trade: the consensus is that China is preparing for a long dispute. Brexit: The suspension of Parliament (suggested by Boris, approved by the Queen) could result in a messy and disorderly split between the UK and the EU, with unforeseen consequences that are hard to quantify. Hong Kong: another potentially volatile situation in a major trading hub. We are seeing many lenders trying to figure out spreads and floors on fixed rate loans. Many are flooring rates near 4.00%, while others are quoting and closing under 3.50% on 10 year money (!), Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

More Perspectives ›

FALL ANALYST OPPORTUNITY

GSP is seeking a fall analyst. This position is primarily responsible for supporting a team with financial analysis/underwriting, investment memoranda, report preparations, closings, and ad-hoc projects. The intern will work in a high-energy, team-focused environment. This is a paid, hourly position.

For more information, please contact Alex Rossinsky arossinsky@gspartners.com or Akash Rohera arohera@gspartners.com

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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