FINfacts™ XXIV – No. 188 | October 9, 2019

MARKET RATES
Prime Rate 5.00
1 Month LIBOR 1.94
6 Month LIBOR 1.96
5 Yr Swap 1.39
10 Yr Swap 1.50
5 Yr US Treasury 1.39
10 Yr US Treasury 1.58
30 Yr US Treasury 2.08

RECENT TRANSACTIONS
$16,300,000 Non-Recourse Construction Loan for Development of a 115-Key Hotel; West Sacramento, CA

Rate: 1 Month LIBOR + 7.50%
Term: 36 Months with Two 12-Month Extensions (3+1+1)
LTC: 80%
Amortization: Interest Only
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners arranged $16,300,000 in non-recourse construction financing for the ground-up development of a 115-key select-service, extended-stay hotel in West Sacramento, California. The Project is located across the bridge from Downtown Sacramento on a main thoroughfare and within direct proximity to the newly built West Sacramento City Hall. The Project is well positioned as an economic alternative to travelers and a convenient option for long-term local guests. The financing allows the Sponsor to break ground on their third hotel under development in the greater Sacramento metropolitan area.

GSP identified a capital provider who was intent on securing a long-term relationship with the Sponsor, recognizing their extensive hospitality experience and ability to execute both on the construction and on the overall business plan with a high-degree of surety. Forming this relationship earned them a highly leveraged deal, sized to north of 80% of total project costs. The interest only, non-recourse construction loan is priced at a spread of 1 Month LIBOR plus 750 basis points, with a three-year term and two 12-month extension options. GSP highlighted the submarket’s various economic drivers, demonstrating its appeal as a pioneering and cost-effective market with tremendous growth potential.

Advisors

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

$7,400,000 Interest Only Refinance for a Multifamily Property; 74% LTV at Breakeven DSCR; Venice Beach, CA

Rate: 5.00%
Term: 30 years
Amortization: Interest Only
LTV: 74%
DCR: Breakeven, 1.0:1.0
Lender Fee: $2,730

Transaction Description:

George Smith Partners arranged a $7,400,000 refinance for a multifamily property in Venice Beach. The proceeds provided 74% leverage and was fixed at a rate of 5.00% with interest only payments. Over the past 15 months, the Sponsor renovated four of the units and upgraded the electrical and plumbing. GSP sourced a capital provider that understood the value of the location and the Subject Property along with the strength of the Sponsor in order to mitigate a breakeven debt service coverage ratio and a high loan to value.

Challenges:
The Sponsor was traveling for work in another country when loan documents were ready to be signed. Due to the Sponsor’s busy schedule, they were unable to go to a U.S. Embassy to sign loan documents and would not return from their trip for over 3 months.

Solutions:
GSP was able to get the Lender comfortable in allowing the Sponsor’s Power of Attorney (POA) to sign loan documents. The Lender has never allowed a POA to act as signer on behalf of a Sponsor and was hesitant to allow for a POA to sign for a new Sponsor. After many conversations GSP was able to convince the Lender to allow the POA to act as signer and even agreed to waive their internal legal fees during this process.

Advisors

Reuven Risch
Vice President

$6,870,000 Cash Out Refinance of Medical/Office Building; Los Angeles, CA

Rate: 3.98%
Term: 5 years
Amortization: 30 years
Prepayment: None
LTV: 70%
DCR: 1.25

Transaction Description:

George Smith Partners secured a $6,870,000 cash-out refinance loan for a 43,435 square foot medical/office property in Los Angeles. The loan represented 70% of value and a 1.25x debt coverage ratio. Our team helped the Sponsor secure the previous loan about a year ago at a time when the Property had 20% vacancy. Due to the considerable upside potential, the Sponsor had deliberately chosen a loan with no prepay. Since then, they successfully signed several new leases and achieved 100% occupancy.

In a survey of the market, GSP found that other lenders were limited by a higher stress rate, an above-market vacancy factor, or a lower LTV constraint. The selected Capital Provider had none of these constraints and was able to provide proceeds $300,000 higher than the rest of the market. The new Capital Provider was also able to provide the Sponsor full credit for the new leases without a seasoning requirement. The Capital Provider also included cash flow from month-to-month tenants and short-term tenants in their underwritten cash flow. As a result, the loan provided a considerable return of equity to the Sponsor. The loan was quoted at a rate of 5 year CMT + 2.55% with no floor. During application, the index rate declined by about 30 basis points. At loan approval, the rate was fixed at 3.98% for 5 years.

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
Paul Monsen
Vice President
Samuel Sarshar
Assistant Vice President

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HOT MONEY
Multifamily Financing Starting at 3.60%

George Smith Partners is working with a capital provider funding permanent debt to 75% LTV. With a strong appetite for Multifamily, Office, Industrial, Retail, Self-Storage and Mixed-Use properties the Lender offers rates starting at 3.60% for loans in 10 Western U.S. states for transactions up to $30,000,000. The Lender has non-recourse and interest-only options available along with aggressive underwriting down to a 1.15x DSCR.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Fed Minutes, Powell Remarks Reveal A Divided/Reluctant Fed, “Trick or Treat”

Highlights of today’s release of the September 2019 Fed meeting minutes: (1) Fed members are wary of futures markets that indicate multiple rate cuts in the next 6 months (note that the CME markets indicate an 93% chance of a rate cut on Halloween). They feel that market expectations may be “ahead” of reality. The danger is that if the Fed doesn’t match the expectation, major selloffs in stock markets will occur; (2) The Fed will start buying treasuries again in order to inject more liquidity into the system in the wake of the recent near meltdown in the overnight lending “repo” markets. However, don’t call it “QE (Quantitative Easing)”, Powell referred to it as an “organic” process that is more “data dependent”, (they will put out fires as needed); (3) Powell discussed “profound changes in the economy” and how existing metrics and reports may be inadequate; (4) Trade disputes are a huge concern, over 25 mentions of trade and tariffs in the meetings, members are concerned about the effect of tariffs on economic activity. US/China trade deal expectations are very low, expect another “kick the can down the road” announcement on Friday, more talks and a delay in the Oct 15 scheduled tariff increases, but no “major breakthrough”. Stay tuned.

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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