FINfacts™ XXIV – No. 198 | December 18, 2019

MARKET RATES
Prime Rate 4.75
1 Month LIBOR 1.76
6 Month LIBOR 1.90
5 Yr Swap 1.74
10 Yr Swap 1.88
5 Yr US Treasury 1.74
10 Yr US Treasury 1.93
30 Yr US Treasury 2.31

INTRODUCTION

On behalf of the GSP team, we wish you a Happy & Healthy 2020!

Antonio Hachem, Malcolm Davies, Gary E. Mozer, Bryan Shaffer, Jonathan Lee, Gary E. Tenzer, Shahin Yazdi, Steve Bram


RECENT TRANSACTIONS
$25,500,000 Non-Recourse Bridge Financing for an Acquisition of an Office Building; Phoenix, AZ

Rate: 30 Day LIBOR + 3.50%
Term: 36 Months with Two 12-Month Extensions (3+1+1)
LTC: 65%
Amortization: Interest Only
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners arranged $25,500,000 in non-recourse bridge financing for the acquisition of a 230,000 square foot Class A office building located in the heart of Phoenix, Arizona’s Midtown District. Positioned on a heavily trafficked thoroughfare of a major professional corridor, the site benefits from its central location, proximity to Downtown Phoenix and abundance of local economic drivers. The Project, built in 1982, had been well-maintained but was running a below-market occupancy rate of 82% due to the recent expiration of a large tenant lease. This bridge facility allowed the Canadian-based Sponsor to purchase the asset and undergo a proposed renovation, bringing the design up to competitive market standards in order to successfully lease-up and stabilize the asset.

By focusing attention on sophisticated bridge lenders active in the local area, GSP identified a capital provider who understood the growth of the market. The selected Capital Provider structured around the Project’s current vacancy, recognizing the strength of the Sponsor and their ability to successfully execute on the intended business plan of value creation. The loan was structured with minimal cash management language and featured pari passu funding throughout the term. The interest only non-recourse bridge loan was priced at a spread of 350 basis points over the 30-Day LIBOR, with a three-year term and two 12-month extension options.

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

$11,895,000 Cash-Out Office Refinance; Orange County, CA

Rate: 3.88%
Term: 5 Years
Amortization: 30 Years
LTV: 65%
DCR: 1.20
Fees: .50 points
Recourse: Corporate & warm-body
Prepayment: 5,4,3,2,1

Transaction Description:

George Smith Partners placed an $11,895,000 cash-out refinance of a 100% owner/user corporate office and assemblage facility in Orange County, California. Excess proceeds were used to address a loan maturity for other unrelated real estate. The other assets are not stabilized but located in primary in-fill Los Angeles markets. Although proceeds were allocated to other real assets our Capital Provider only collateralized the Subject Property. Our Capital Provider sized this request to 65% of appraised value and fixed the rate at 3.88% for 5 years. It was extremely important for our Sponsor to have permanent financing that carries a step-down pre-payment penalty from 5%.

Advisors

Jonathan Lee
Principal/Managing Director
Shahin Yazdi
Principal/Managing Director
David Stepanchak
Senior Vice President
Matthew Kirisits
Vice President
Olga Brandeis
Senior Vice President
Kyle Redmond
Analyst
Paul Monsen
Vice President

$3,000,000 Permanent Financing for a Ground Lease Single-Tenant Office Building; Irvine, CA

Rate: 3.00% fixed
Term: 5 years
Amortization: 5 years
Loan to Value: 44%
Global DSCR: 1.25X
Prepayment: 3%, 2%, 1%
Guaranty: Recourse
Lender Fee: Par

Transaction Description:

George Smith Partners successfully arranged $3,000,000 in a cash-out permanent refinance secured by the sandwich leasehold interest in a single-tenant leased office building in Irvine, California. The Subject Property is in the heart of Orange County’s business district and next to the Irvine Business Complex and John Wayne Airport. The neighborhood is in a mature stage with limited amount of vacant land available for new development. The Property consists of three multi-story buildings having 69,474 SF net rentable space.

The Subject Property is encumbered by a ground lease. The leasehold interest, ground lease, and tenant improvement lease all expire in five years, with no extension options. The non-investment grade tenant has a six year lease remaining and they are not required to provide business financials.

GSP identified a capital provider able to structure a five year fully amortizing loan. The Sponsor’s considerable real estate track record and financial strength further encouraged the Lender to provide a low interest rate. The recourse loan is fixed at 3.00% with a 5-year term and will be fully amortized in five years.

Advisors

Gilda Rivera
Senior Vice President
Irene Liu
Assistant Vice President

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HOT MONEY
Floating Rate Bridge Financing with Earnout

George Smith Partners is working with a national capital provider that will provide non-recourse fixed rate financing with an earnout up to 80% of cost. With terms up to 5 years, loan sizes range from up to $40,000,000 (larger in certain circumstances) and pricing starting in the high 200 bps over LIBOR for core asset types as well as co-living, self-storage, student housing, hospitality, commercial condo and specialty use. Program highlights include no negative arb, flexible prepayment and non-cash flowing assets.

More Hot Money ›

Special Announcement

Congratulations to Evan Kinne and his family as they welcomed Boden Kinne weighing 7lbs 7oz!


Pascale's Portrait
PASCALE'S PERSPECTIVE
Domestic and Global Developments Fuel “Melt Up” In Treasury Yields

Behind the impeachment drama, our divided government has been getting things done: new trade agreement with Mexico and Canada, major spending bills (with major deficit spending), an outline of a trade deal with China (some are calling it more of a “trade truce” with the heavy lifting set for next year). The Fed is doing their part by injecting liquidity into the short term markets almost daily, but don’t call it QE. All of these factors along with some positive economic news from Europe and hopes that next year’s Brexit will be orderly have buoyed the 2020 global growth outlook. Treasuries are selling on the sentiment with the 10 year hitting 1.92% today, the highest since July. Maybe those prognosticators that picked a 2.00% 10 year T at year end are pretty close. The rising treasury and relatively stable LIBOR index could return us to a more “normal” index relationship: a steeper yield curve and a 10 year T getting separation from 30 day LIBOR (as the Fed has indicated no rate increases in 2020). So floating loan rates should again be “cheaper” than perm rates. The good economic fundamentals should keep loan spreads tight. In a few weeks, the securitized lenders (CMBS, CLO, etc) will be ready to issue new paper to bond buyers flush with new allocations for the new year. Portfolio lenders will have to compete as the securitized markets often set the bar on spreads.

Signing off for 2019. It’s been a pleasure writing this column for you and I look forward to an exiting new decade.

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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