FINfacts™ XXIV – No. 197 | December 11, 2019

MARKET RATES
Prime Rate 4.75
1 Month LIBOR 1.74
6 Month LIBOR 1.90
5 Yr Swap 1.64
10 Yr Swap 1.74
5 Yr US Treasury 1.64
10 Yr US Treasury 1.80
30 Yr US Treasury 2.26

RECENT TRANSACTIONS
$68,750,000 Non-Recourse, Ground-Up Development of an 885-Bed, Student Housing Project, 80%LTC; Merced, CA

LTC: 80%
Term: 2 years

Transaction Description:

George Smith Partners arranged $68,750,000 in non-recourse, senior construction financing for the ground-up development of a 270-unit, 885-bed student housing complex in Merced, CA. The Project is uniquely positioned to serve the growing enrollment of both UC Merced and Merced City College and is the only planned private student housing project in Merced. The high leverage loan will provide 80% of total project cost and significant post-closing flexibility with a capital provider who will act more like a partner than a lender from closing thru development and payoff. Challenges to the transaction included: The Project is located near

University of California, Merced where enrollment is relatively low compared to other UCs. Many capital providers want to be near larger, more established universities. The Project is in a tertiary market. Many capital providers want to be in more densely populated, urban markets. Part of the equity included EB-5 investments. Many capital providers perceive this type of investor as less desirable compared to standard, limited partner investors.

Mitigating factors: While obtaining building permits is next to impossible due to its location at the border of the local city and county municipalities, the Sponsor has already obtained their building permits. There is a limited supply of student housing which is not expected to keep up with demand due to the school’s projected future enrollment. Lastly, the Sponsorship team is well positioned because of its experience and personnel to manage the Project through to completion and stabilization.

GSP was able to arrange a high leverage construction debt solution from a capital partner that understood why the Sponsor’s and Project’s strengths mitigated the challenges. Priced off LIBOR, the two-year loan was sized to 80% of total development costs. There is no repayment guarantee. A warm-body signature was required for the completion and carve-out guarantees.

Advisors

Scott Meredith
Senior Vice President
John Thrall
Assistant Vice President

$3,700,000 Non-Recourse Refinance, Mixed-Use Retail and Office Property; Mission Viejo, CA

Rate: Fixed at 4.10% for 7 Years then Floats at Treasury + 2.55%
Term: 10 years
Amortization: 30 years
LTV: 55%
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners secured a $3,700,000 non-recourse refinance for a 14,454 SF mixed-use property in Mission Viejo. The loan is fixed at a rate of 4.10% for seven years. Over the past year, the Property had some leases roll. The Sponsor spent a significant amount of time and effort in order to ensure the new tenant profile was comprised of ecommerce-proof businesses. Although the Property was 100% occupied once GSP commenced the marketing process, the historical vacancy caused some concern with lenders. GSP discussed the strength of the market, asset, and Sponsor in order to mitigate those concerns. In doing so, GSP was able to create a robust market for the Sponsor and source a Capital Provider that understood the value of the Property. The Lender was able to rate lock at application and was ready to close in less than 60 days.

Advisors

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

Acquisition Permanent Financing for a Multifamily Property, Sized to 75% LTV and a 1.15x DCR; West Adams, Los Angeles, CA

Rate: 4.00%
Term: 10-Year Term; 5-Year Fixed
LTV: 75%
DCR: 1.15x
Amortization: 30-Year
Prepayment Penalty: 3-2-1
Lender Fee: 0.25%

Transaction Description:

George Smith Partners arranged permanent acquisition financing for a multifamily property in the West Adams submarket of Los Angeles, California. The 1960’s vintage property had significant deferred maintenance and below market rents, but the Sponsor required permanent financing from a portfolio lender in order to take advantage of today’s low interest rates. GSP sourced a regional bank that was willing to fund 75% of the purchase price with no holdback based on underwriting the in-place cash flow to a 1.15x DCR. The loan carried a five-year fixed rate of 4.00%, a ten-year term and an attractive 3-2-1 prepayment penalty. No deposits were required.

Advisors

Zachary Streit
Senior Vice President

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HOT MONEY
Non-Recourse Multifamily Bridge Financing to 80% LTC

George Smith Partners is working with a national capital provider funding non-recourse bridge debt to 80% of total cost. True proforma based underwriting with a strong appetite for Multifamily and Mixed- Use properties (up to 100+units) with no in-place cash flow requirements. The Lender offers flexible loan structures with interest only terms up to 3 years for transactions up to $15,000,000. Risk adjusted, fixed rate pricing starts at 6.75%, fixed for the life of the loan with no extension fees. Closing costs including lender legal are less than $2000.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Fed Accepting “New Normal”, Takes Rate Increases Off the Table for 2020

Today’s Fed statement and remarks by Fed Chair Powell reflected a continuing change in the relationship between interest rates, economic stimulus, employment and inflation. 2019 resulted in three rate cuts (“mid-cycle adjustments”) which helped spur record stock market highs and low employment. Last week’s Jobs Report was a blockbuster even after accounting for the end of the GM strike. As those increases were implemented, many of the Fed participants indicated expectations of increased inflation this year as employment rose. The theory that full employment will result in inflation has been a bedrock of economic theory for decades. With unemployment at 3.5% and the PCE index at 1.6%, the theory is being tested and failing. By signaling no rate increases for 2020, the central bank is basically daring inflation to return. Many are concerned by polling indicating that public expectations of inflation are at historic lows. Which means that market participants are expecting low inflation and that may create a “self-fulfilling prophecy”. This week’s sad passing of legendary Fed Chair Paul Volcker brought back memories of the Fed’s most significant inflation battle. With inflation running at 12%, Volcker increased the prime rate to 22%, stopping inflation and causing significant pain as unemployment rose. Long memories of the early 1980s move markets to this day as treasuries sell off if inflationary news is in the headlines. The Fed feels that they have reached the “neutral rate” and it’s time to watch the effects. 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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