FINfacts™ XXIV – No. 187 | October 2, 2019

MARKET RATES
Prime Rate 5.00
1 Month LIBOR 2.01
6 Month LIBOR 2.06
5 Yr Swap 1.40
10 Yr Swap 1.49
5 Yr US Treasury 1.43
10 Yr US Treasury 1.60
30 Yr US Treasury 2.08%

RECENT TRANSACTIONS
$36,950,000 Bridge Loan for Purchase of 192 Unit Multifamily Property; 72.5% LTC; LIBOR+2.55%; Los Angeles, CA

Rate: Floating at 1 Month LIBOR + 2.55%
Term: 3+1+1
Amortization: Interest Only
Fees: 0.5% in/0.25% out
Prepayment Penalty: 18 months spread maintenance
LTC: 72.5%
LTV: 65%
DY: 3.7% in/7.0% out
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners secured $36,950,000 in proceeds for the purchase of a 192-unit multifamily property located in an infill area of Los Angeles. The loan is structured as $32,989,000 at closing, $825,000 in interest reserve, and $3,136,000 in holdbacks for capital expenditures. The fully funded loan represents 72.5% of the project capitalization. GSP ran a competitive process among providers of bridge capital and received quotes ranging from L+255 to L+375. The selected lender had both the lowest pricing and the most amenable structure for the Borrower to complete their business plan.

Several challenges were encountered while discussing the transaction with capital providers. The Property is located in a transitional submarket, which caused some lenders to quote the deal conservatively. GSP pointed out that the market is a very close distance to multiple highly desirable neighborhoods. When the Sponsor signed the PSA, the Property had over 20% vacancy, resulting in a low going-in debt yield. This ruled out many of the usual bridge lenders because they required a 5.0% or higher debt yield at close. The selected lender viewed the vacancy as an advantage because the Sponsor could quickly renovate and turn the vacant units. The Lender stipulated only a 3.7% debt yield at close and provided an interest reserve to make up for the shortfall in the first few months. The fully funded proceeds were underwritten to a 7.0% debt yield. While all lenders required a cash management account, the selected lender did not have a debt coverage ratio test until the 12th month after closing. The DCR test also required three consecutive months of underperformance before springing cash management is triggered. The Lender also worked to provide an easy draw process that allows the Borrower to get reimbursed as units are turned.

Advisors

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

$13,350,000 for the Acquisition of an Apartment Building, Sized to 6.50% Stabilized Debt Yield; Los Angeles, CA

Rate: 1-Month LIBOR + 4.75%
Term: 3 Years
Amortization: Interest Only
Prepayment Penalty: 18 Months Minimum Interest
LTC: 77%
Stabilized DY: 6.5%
Fees: 1% in/1% out (waived if refinanced with current lender)
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners secured $13,350,000 of bridge financing for the acquisition and renovation of a an apartment building in West Los Angeles. The building, which was constructed in 1969, is in need of a major renovation. The financing provided 77% of the acquisition and renovation cost. The Sponsor intends to complete an extensive renovation to the exterior and common areas. At acquisition the building was 60% occupied, so the Sponsor will immediately improve the vacant units and rent at market. The loan was sized to a 6.50% stabilized debt yield, which equated to 77% of total project cost. The non-recourse financing has a floating interest rate of LIBOR + 4.75% and has a 3-year term.

Advisors

Steve Bram
Principal/Co-Founder
Allison Higgins
Senior Vice President
Patrick O’Donnell
Vice President

$1,710,000 Refinance for an Owner Occupied Industrial Building; Santa Clarita, CA

Rate: 5-year Treasury + 2.05% (all-in rate 3.5%), no floor
Term: 5 year fixed
Amortization: 25 years
Loan to Value: 46%
Debt Coverage Ratio: 1.25x
Prepayment: 3%, 2%, 1%
Guaranty: Recourse
Lender Fee: 0.25%

Transaction Description:

George Smith Partners successfully secured $1,710,000 of rate and term refinancing for an owner-user industrial property in Santa Clarita, CA. The Property is a free-standing manufacturing building with 25% office.. It was built in 1987 with a net rentable area of 23,350 SF. Santa Clarita offers tremendous access to labor and it is conveniently located close to regional distribution centers, studio and entertainment uses, manufacturing and research and development businesses. The loan is sized to 46% LTV , and is fixed for 5 years at 3.50% with 25-year amortization.

The Sponsors are in the aerospace machining and assembly and stock car industries, which are highly specialized. The Sponsor plans to sell the Property in 5 years. Although investors have a strong appetite in industrial properties, this Property faces a comparative disadvantage as it only has grade level loading capacity as opposed to dock high loading. Additionally, the Property is built upon single tenant capacity, and it offers a functional obsolescence of 25% office ratio.

GSP sourced a lender who has a group specializing in the Aerospace and Defense industry. This lender underwrote and understood the opportunities and challenges in the business. The Lender provided a 5-year term, with the last two years open with no prepayment penalty.

Advisors

Gilda Rivera
Senior Vice President
Irene Liu
Assistant Vice President

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HOT MONEY
Non-Recourse Fixed Rate Financing 100% LTV

George Smith Partners is working with a nationwide, non-recourse capital provider financing single tenant investment grade deals up to $300,000,000. With the ability to fund up to 100% of value, the lender offers fixed rates between 3.25% – 3.45% based on the credit quality behind the lease, and terms up to 30 years for Federal, Municipal, Office, Distribution and Industrial properties. For a NNN lease the lender will advance down to a 1.0 debt service. Structures can include ground leases, construction to permanent and forward fundings

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Markets and the Fed Are “Data Driven” and the Engine Light is On

This week’s economic reports are pointing in the wrong direction: US Manufacturing dropped to the lowest reading in over 10 years, global trade is slowing to its weakest since 2009 (not helped by today’s tariff announcement between US and Europe), commodity prices and inflation remain below targets (remember the oil spike due to Saudi production interruption? Oil is down $10 a barrell in the last 2 weeks). The US economy’s main engines are manufacturing, service sector and consumers. Therefore, tomorrow’s service sector data (aka the ISM nonmanufacturing index) will be highly watched. The US consumer has remained strong lately. However, look for the Fed to cut rates for sure if weakness in those sectors is reported. The 10 year T hit a recent low of 1.59% today. 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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