FINfacts™ XXIV – No. 193 | November 13, 2019

MARKET RATES
Prime Rate 4.75
1 Month LIBOR 1.76
6 Month LIBOR 1.93
5 Yr Swap 1.66
10 Yr Swap 1.79
5 Yr US Treasury 1.69
10 Yr US Treasury 1.89
30 Yr US Treasury 2.36

RECENT TRANSACTIONS
$34,000,000 Non-Recourse, Permanent, Take-Out Financing without Certificate of Occupancy; Santa Monica, CA

Rate: 3.65% Fixed
Term: 10 Years
Amortization: 30 Years
LTV: 45% (As-Is Completed)
Guaranty: Non-Recourse: 3.65% Fixed

Transaction Description:
George Smith Partners successfully secured $34,000,000 in non-recourse, construction take-out, permanent financing at 3.65% fixed for 10 years for a newly built three-story, mixed-use, 30-unit, high-end building in Santa Monica, CA.

Challenges:
The Sponsor’s existing construction loan was set to mature, and the Property had not yet received a temporary certificate of occupancy. In addition, the borrowing entity was headquartered in a foreign country with extensive development experience abroad, but this was their first project in the U.S. Furthermore, only one of the three retail spaces had been leased and pre-leasing activity on the apartment units had not yet commenced.

Solutions:
GSP focused on the superior location, high-quality residential units and strength of the sole retail tenant, Trader Joe’s, to ensure maximum interest among financing sources. Ultimately, GSP leveraged its expertise and strong relationship with a Life Insurance Company to execute a structured, non-recourse, low-rate, permanent loan – prior to Certificate of Occupancy issuance. This early financing also saved the Sponsor from having to secure a bridge loan. Furthermore, GSP also negotiated a top-off to the loan based on the Property achieving certain milestones, thus enabling the Sponsor to access additional capital in the future.

Advisors

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

$7,200,000 Interest Only Refinance for a Retail Center; Fixed at 3.65% for 10 Years; Vista, CA

Rate: 3.65%, Fixed
Term: 10 Years
Amortization: Full Term Interest-Only
Loan to Value: 62.5%
Prepayment: Defeasance
Lender Fee: None
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners secured $7,200,000 to refinance a 15-tenant retail center in Vista, CA. The Property, which was purchased by the Sponsor in 2016, was 30% occupied at acquisition. The Sponsor spent the last 3 years repositioning the center and leasing the vacant space to a diverse tenant mix of local businesses. The center is now 100% occupied and is anchored by a local grocer and a national bank. With the original business plan completed, there was a question of whether to sell or hold the asset.

GSP arranged 10-years of permanent financing that allowed the Sponsor to return a sizable portion of the initial equity investment back to investors. The loan is also interest-only for the entirety of the term, maximizing ongoing cash flow. Sized to 62.5% LTV, the non-recourse financing carries a fixed interest rate of 3.65%. The multiple benefits that the loan provides allowed the Sponsor to forgo the option of a sale.

Advisors

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

$4,550,000 Refinance for a Newly Constructed 10-Unit Los Angeles Multifamily Property; Los Angeles, CA

Rate: Fixed at 3.8% for 7 years, then floating at 6M LIBOR + 2.5%
Term: 30 years
Amortization: 30 years
Prepay: Stepdown
LTV: 65%
DCR: 1.2
Guaranty: One Year Recourse, then converts to Non-Recourse

Transaction Description:

George Smith Partners secured $4,550,000 to refinance a newly constructed 10-unit multifamily property in Los Angeles. The financing provided 65% LTV and is fixed at a rate of 3.80% for seven years. The Sponsor needed to begin the loan application process while the Property had only 5 out of 10 units leased. This eliminated Agency financing because they require a fully leased and stabilized property. GSP focused on Banks that would begin processing the loan while units were still being leased. The selected Capital Provider underwrote to the stabilized cash flow and simply required full occupancy before the loan closed. The Lender did not require any seasoning on the newly signed leases. Although the Capital Provider required a recourse guarantee at close, they stipulated that the loan would convert to non-recourse after one year of stabilized operations. A 60-day rate lock was signed at application and the Sponsor was able to lock in a low 7-year rate. The original close date was delayed because the Sponsor was waiting on the full certificate of occupancy from the City. The Capital Provider extended the rate lock with no charge and closed the loan upon receiving the C of O.

Advisors

Jonathan Lee
Principal/Managing Director
Shahin Yazdi
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
Kyle Redmond
Analyst

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HOT MONEY
Unentitled Urban Infill Land Financing Up to 75% LTC

George Smith Partners is working with a capital provider that will provide non-recourse floating rate financing to 75% of cost including small lot subdivision and predevelopment for multifamily use. Pricing starts at 7.5% for terms up to two years for Multifamily, Office, Industrial, Retail, Urban Infill Land and Mixed-Use projects. Loan sizes range from $1,000,000 to $15,000,000 for transactions located in California, Arizona, Texas, Oregon, Colorado, Idaho, Utah, Washington, Tennessee, North Carolina, Georgia, Pennsylvania, Massachusetts, Maryland, Virginia, Washington DC and Illinois. Origination fees are 2-3 points and there are no exit fees.

More Hot Money ›

SPECIAL ANNOUNCEMENT

 

GSP is proud to support Julie and Steve Bram as they are being honored with the 2019 Ira E. Yellin Community Leadership Award on Sunday, November 24th at 11:30 am by the American Jewish Committee of Los Angeles. The AJC is the leading global Jewish advocacy organization, impacting opinion and policy on combating rising anti-Semitism and extremism, defending Israel’s place in the world, countering terrorism and extremism, and safeguarding the rights and freedoms of all people. Guest speakers are Rabbi Sarah Bassin of Temple Emanuel and Aziza Hasan of NewGround LA Muslim Jewish Partnership for Change.

For more information: www.ajc.org/losangeles/brams


Pascale's Portrait
PASCALE'S PERSPECTIVE
Rates and the Limits of Monetary Policy

Fed Chair Powell’s congressional testimony was possibly overshadowed by other matters before Congress, but significant nonetheless. He reiterated the message from the last Fed meeting: the mid-cycle adjustment (3 rate cuts in 2019) is over, and the Fed is pausing. It was like a victory lap after stock markets hit record highs this week and he commented that the “economy remains consistent – moderate economic growth, a strong labor market”. The futures market is predicting “no cut” until well into 2020. So we seem to be finally at the “neutral rate” of about 1.50% (note that many Fed participants pegged the neutral rate to be about 3.50-3.75% in recent years). And the Fed stands ready to act if “developments emerge that cause a material reassessment”, so we are back to watching the data. Powell put his audience (Congress) on the spot. He mentioned that the present rate of deficit spending is “unsustainable” and that the USA’s debt burden will make it difficult for future Congress’ to actually engage in fiscal policy (stimulus, infrastructure) during the next downturn. He was basically saying that monetary policies have reached their limit (note that he shot down any talk of negative rates in the U.S.) and that fiscal policy is lagging and hamstrung by the budget deficit. However, Congress is busy trying to pass another stopgap 30-day funding bill to avoid a government shut-down before Thanksgiving.  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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