FINfacts™ XXIV – No. 190 | October 23, 2019

MARKET RATES
Prime Rate 5.00
1 Month LIBOR 1.82
6 Month LIBOR 1.93
5 Yr Swap 1.57
10 Yr Swap 1.68
5 Yr US Treasury 1.59
10 Yr US Treasury 1.77
30 Yr US Treasury 2.26

RECENT TRANSACTIONS
$13,155,000 Non-Recourse Cash-Out Refinancing of a Retail Shopping Center; Orange County, CA

Rate: 8.9% fixed
Term: 2 Years
Amortization: Interest Only
LTV: 80% / LTC: 90%
Prepayment: None – 6 month minimum
Guaranty: Non-Recourse

Transaction Description:
George Smith Partners successfully arranged $13,155,000 in non-recourse bridge financing for a 20,000 sf shopping center in Orange County, CA. The Sponsor has invested over $10,000,000 in renovating the Property and it now it is currently 91% occupied.

Challenge:
The Subject Shopping Center has undergone significant reposition in tenant makeup and revenue. As of the date of funding the Center was 91% leased, but several of the tenants were in the process of building out their TIs and had not moved into the Property. Banks, insurance companies, CMBS lenders and credit unions requested more seasoning from our Sponsor. Debt funds and hard money lenders did not want to provide enough proceeds. The financing was too early for a perm lender who would want to see the seasoned cash-flow, and too late for most bridge lenders who would want to fund the actual construction and renovation without releasing cash out to the Sponsor.

Solution:
The Sponsor had many goals which included the reposition of the center, the sale of the center, and financing that allowed the Sponsor to pull cash out to sustain him during the sale process allowing him to receive back some of the value added to the Property. GSP was able to provide a solution for the Sponsor with a Midwest-based debt fund that allowed cash out for working capital of over $3,000,000 in less than 15 days. With GSP’s help, the Lender understood the ultimate value of the Property, was able to get comfortable with the large cash-out and give the Sponsor what they needed to complete the final stages of their plan and sell the Property.

Advisors

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

$4,100,000 Non-Recourse Cash-Out Refinance, 14-Unit Multifamily Property; West Los Angeles, CA

Rate: 4.20%
Term: 30 years; 5 years fixed then converts to floating rate at Libor + 2.25%
Amortization: 3 Years Interest Only then 30 year amortization
LTV: 65%
Minimum DSCR: 1.20x
Guaranty: Non-Recourse
Prepayment: Stepdown, 3%, 2%, 1%, open

Transaction Description:

George Smith Partners successfully secured a $4,100,000 non-recourse permanent refinance of a 14-unit, multifamily property in West Los Angeles. Loan proceeds were used to pay off the existing variable, higher interest rate bridge loan into a lower interest, fixed rate loan. There was significant cash-out to the Sponsor, who had recently completed an extensive reposition and upgrade of the Property. Due to the Sponsor’s business plan, flexibility and interest only were paramount. As such, GSP worked with the Lender to structure a 5-year fixed rate term with 3 years interest only and a step-down prepayment structure of 3%, 2%, 1%. This structure allows the Sponsor to maximize current cash flow while providing the flexibility of a step-down structure that burns off when the loan begins to amortize.

Advisors

Gary E. Mozer
Principal/Co-Founder
Katie H. Rodd
Senior Vice President
Michael Anderson-Mitterling
Senior Vice President
Kyle Howerton
Senior Vice President
Akash Rohera
Assistant Vice President

$3,300,000 Owner/User Warehouse Acquisition Financing; 75% LTV; Fixed at 3.36% for 10 Years; San Fernando Valley, CA

Rate: Fixed at 3.36%
Term: 10 years
Amortization: 30 years
Fees: Par
Prepayment Penalty: Swap breakage
LTV: 75%

Transaction Description:

George Smith Partners secured $3,300,000 in proceeds for the purchase of a 19,680 sf warehouse located in the San Fernando Valley. The loan is fixed at 3.36% for 10 years. The Sponsor owns the adjacent property and intends to expand their business into additional warehouse space. Before discussing the deal with lenders, GSP fully underwrote the underlying business and demonstrated its substantial and recurring cash flow. As a result, many lenders were interested in the transaction at 75% LTV, which was above-market leverage for a non-SBA execution. The Borrower was able to select the loan with the best rate and structure. Additionally, the Lender provided an option to pre-pay 20% of the principal balance each year with no penalty.

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

SPEAKERS CORNER

Malcolm Davies and Zack Streit will both be speaking at the Information Management Network’s (IMN) upcoming New Hotel Construction & Development (West) Conference on October 28-29, 2019. This conference is tailored to industry professionals looking to capitalize on changes in the hotel sector.

Malcolm Davies will moderate the panel “Private Capital Roundtable: Equity, Debt & Opportunity Zones” at 2:15pm on Monday, October 28th, and Zachary Streit will moderate the panel “Financing New Construction” at 12:30pm on Monday, October 28th. The panels will update audience members on the latest strategies, trends and insights for capitalizing hotel financings with a focus on ground up construction and heavy redevelopment projects.

For more information: please visit https://www.imn.org/real-estate/conference/2nd-Annual-Hotel-Construction-and-Development-West/

Please join Gary Tenzer, Principal/Co-Founder of George Smith Partners at the GlobeSt.com Apartments Conference (formally RealShare) at the Westin Bonaventure on October 29-30th. Gary will moderate the 10:00 am Debt and Equity Financing panel on Wednesday, October 30th. The discussion will dive into if there will be strong capital interest from foreign & domestic equity and debt providers as we head into 2020. Also, what factors could cause volatility down the road, and who would be well-positioned to benefit from potential disruptive factors in the marketplace?

For more information, please visit Globest.com/events


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HOT MONEY
Permanent Construction Takeout Financing Prior to Lease-up

George Smith Partners is working with a national portfolio lender providing construction loan take-out permanent programs for all product types ranging from $10,000,000 to $65,000,000 in primary and secondary markets prior to stabilization. With the ability to advance 75% of development cost, pricing starts at 3.50% for terms from five to ten years and the program offers a flexible stepdown prepayment. This lender offers true non-recourse and carve outs to an entity and not a warm body.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Going Negative?

The Fed Futures market indicates a 94% chance of a 0.25% rate cut next week. A December rate cut is also priced in to market expectations. 30 Day LIBOR is now 1.82% (appropriately since the Fed Funds target is now 1.75-2.00%). This means LIBOR should close the year out at 1.25%, leaving very little room for further cutting (assuming the U.S. does not “go negative” on rates). That assumption may be in question as a leading Fed economist analyzed 5 other central banks that instituted sub zero rates starting in 2012. The U.S. Fed held rates at near zero from 2008-2015. The paper suggested that the U.S. recovery would have benefited from negative interest rates, so the next recession may feature sub-zero in the U.S. 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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