FINfacts™ XXIV – No. 185 | September 18, 2019

MARKET RATES
Prime Rate 5.25
1 Month LIBOR 2.06
6 Month LIBOR 2.09
5 Yr Swap 1.56
10 Yr Swap 1.63
5 Yr US Treasury 1.67
10 Yr US Treasury 1.79
30 Yr US Treasury 2.25

RECENT TRANSACTIONS
$13,850,000 Non-Recourse Permanent Loan for a 20-Story Office Building; 4.00% Fixed 4 Years Interest Only, 73% LTV; St. Louis, MO

Rate: 4.00% Fixed
Term: 10 Years
Guaranty: Non-Recourse
Amortization: First 4 Yrs Interest Only, 30 Yr Amort. Thereafter
LTV: 73%
Lender Fee: None

Transaction Description:
George Smith Partners successfully placed a $13,850,000 permanent loan for the refinance of a 213,000 square foot Class A, multi-tenant office building located in the heart of Downtown St. Louis, Missouri. The multi-tenant building has a unique combination of national and local businesses. The Sponsorship has added tremendous value by improving the Property and creating state of the art shared amenities.

Challenge:
The Downtown St. Louis office market has been weak mainly because several buildings fully occupied by Fortune 500 Companies have gone vacant with tenants moving to the suburbs or out of town. Several lenders were concerned about the market and high level of vacancy. In addition, lenders usually only offer interest only payments options with leverage of 60-65%. For this property, the sponsor desired long term low fixed rate non-recourse financing with some interest only, but also required the higher leverage to make the loan work.

Solution:
With experience in the market, GSP utilized an international relationship lender whom we had completed other complicated office transactions to complete this financing. We overcame the lenders objections by providing detailed market research and access to local experts, which demonstrated to the Capital Provider the strength of multi-tenant office market as compared to the high vacancy in the single tenant downtown office market. Thanks to our understanding of the market and relationship with the Lender, GSP was able to secure 10 Year Non-Recourse fixed rate of 4.00% with 4 years I/O at 73% Loan to value and close the loan in under 30 days.

Advisors

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

75% Leverage, 3.75% Coupon Non-Recourse Permanent Financing for a Neighborhood Retail Center; Western United States

Rate: 3.75%, Fixed
Term: 10 years
Amortization: 30 Year Amortization
Loan to Value: 75%
Prepayment: Defeasance
Lender Fee: None

Transaction Description:

George Smith Partners successfully placed a $5,740,000 non-recourse, ten-year fixed rate loan on an 89% leased, multi-tenant retail property, shadow-anchored by Savers and Big Lots. GSP worked with the Sponsor to overcome several environmental issues with the Property. GSP sourced a lender able to achieve 75% leverage, non-recourse financing and structure around the environmental issues. The loan was sized to the greater of an 9.75% debt yield or 1.40x debt service coverage ratio on the 3.75% fixed rate coupon.

Advisors

Steve Bram
Principal/Co-Founder
Allison Higgins
Senior Vice President
Nick Rogers
Vice President

$3,500,000 Refinance of a 3-Tenant Industrial Property; Pasadena, CA

Rate: 3.45% Fixed
Term: 5 Years
Amortization: 25 Years
LTV: 44%
Guaranty: Recourse

Transaction Description:

George Smith Partners successfully secured a $3,500,000 permanent refinance of a 3-tenant, 29,000 square foot industrial property in Pasadena, CA. The Sponsor wished to refinance into a lower interest, fixed rate loan as quickly as possible due to the conversion of the existing loan from a fixed rate to a variable rate. GSP obtained a significantly lower rate thanks to the Lender not having a rate floor. This greatly benefited the Borrower in the fluctuating Treasuries environment. In addition, GSP’s strong relationship with the Lender and reliable execution enabled a smooth and timely closing process.

Advisors

Antonio Hachem
Principal
Loren Bedolla
Senior Vice President
Wendy Wang
Vice President
John Choi
Assistant Vice President
Michael Leahey
Vice President

SPEAKERS CORNER

Bryan Shaffer will moderate the Bisnow Capital Markets & Creative Finance Strategies discussion at the Multifamily Pacific Northwest Annual Conference on Tuesday, September 24th in Seattle, Washington. For more information, click here.

Scott Meredith will participate at the Bisnow Phoenix State of the Market conference on Tuesday, September 24th. He will join other industry leaders for the panel discussion, Residential Race: How Is Phoenix Transitioning from Master Planned Communities to Infill Multifamily? For more information, click here.


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HOT MONEY
Preferred Equity Financing Up to 90% LTV

George Smith Partners is working with a capital provider for owners of all types of income producing, value add commercial real estate. Funding transactions from $2,000,000 to $20,000,000 the equity provider offers a 9% preferred return, plus profit participation of approximately 35%. With the ability to go up to 90% of the total capital stack and assuming 70% senior debt leverage, they can provide approximately 2/3rd of the equity on a senior basis, while the operating partner invests approximately 1/3rd of the equity on a fully subordinate basis.

More Hot Money ›

Wedding Announcement

Congratulations to Patrick O’Donnell on his marriage to Elly Newman! We wish them both a lifetime of love and happiness.


Pascale's Portrait
PASCALE'S PERSPECTIVE
Divided Fed Cuts Rates as Cash Shortages Roil Overnight Lending Markets

It’s been a busy week for the Fed.  Overnight Markets:  Monday and Tuesday saw the overnight borrowing rates spike to 10%, up from a normal rate of 2%.  Note that the highly watched rate set by the Fed is the Fed Funds target rate which is enforced via open market operations and other Fed tools but it is not set in stone.  Overnight lending amongst financial institutions is a critical factor in the financial markets.  Banks and other institutions use it to raise cash for daily operations and the loans are secured by Treasuries.  This week’s cash crunch was caused by a confluence of events including: corporate tax payments due Sept 15, large issuance of treasuries last week ($78 billion issued with only $24 billion matured, draining $50 billion of cash from the system), post crisis regulations mandating larger cash reserves held at institutions, etc.  The recent debt ceiling deal and US budget deficit is increasing the supply of treasuries substantially.  High overnight borrowing costs well in excess of the target rate are dangerous as it implies that the Fed doesn’t have control of the rates it is setting.  To its credit, the Fed acted swiftly yesterday and today, injecting over $100 billion into the financial system and overnight rates have calmed down.  Today’s Announcement:  Today’s 0.25% cut was expected and Fed Chair Powell’s press conference was closely watched for signs of future cuts.  Note that the futures market indicates a 42% chance of a cut in October.  The move was by no means unanimous (7-3).  Two voters wanted no cut with the extremely dovish member Bulliard alone advocating for a 0.50% cut.  Powell indicated that future actions are data dependent and stressed that the economy is strong with the exception of trade uncertainty.  It seems some Fed members believe we are at the “Goldilocks” neutral rate now. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

More Perspectives ›

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