FINfacts™ XXIV – No. 202 | January 29, 2020

MARKET RATES
Prime Rate 4.75
1 Month LIBOR 1.65
6 Month LIBOR 1.77
5 Yr Swap 1.45
10 Yr Swap 1.57
5 Yr US Treasury 1.41
10 Yr US Treasury 1.59
30 Yr US Treasury 2.04

RECENT TRANSACTIONS
The Orchard: $55,000,000 Non-Recourse Ground-Up Mixed Use Construction to 80% of Cost; Azusa, CA

Rate: LIBOR + 7.125%
Term: 36 months + 2 nine-month options
Fees: 1 in/1 out
Recourse: No warm bodies; capped at entity level.
Prepayment: Minimum interest based on lender calculation

Transaction Description:

George Smith Partners placed the ground-up development financing for a 163 unit/31,700 square foot mixed use development in Azusa, California. The Transit Oriented Development was previously owned by the City of Azusa and awarded to the Developer via an RFP in 2016 and will include restaurants and a 3,500 square foot Laemmle art house Theater. The Orchard will be the latest project along Metro’s Gold Line which serves the San Gabriel Valley and connects the Valley to Downtown Los Angeles via a 42-minute commute through Pasadena, offering residents a lower cost of housing with ease of transit to employment centers. The Orchard will be a low-cost alternative to commuters considering similar TOD sites in Sierra Madre and Pasadena, amplifying housing options for the healthcare professionals at City of Hope and Kaiser, and providing relief to pent up student housing demand at Azusa Pacific University and Citrus College.

Sized to 80% of total cost, which included an increase in land and covered imputed equity once permits were ready-to-issue (RTI). Priced at LIBOR + 7.125%, the non-recourse construction loan limits all carve-outs and a capped completion guarantees to an entity. There are no “warm-body” signatures on any component of the financing. The three-year term allows for two additional nine-month options. Prepayment is limited to a minimum interest payment calculation and a 1-point exit fee.

Advisors

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

$11,000,000 Permanent Financing Fixed at 3.875% for Single Tenant Medical Office; Chula Vista, CA

Rate: 3.875% Fixed
Term: 10 years
Amortization: 30 Years
Loan-to-Value: 70%
Guarantee: Full Recourse
Prepayment: Open to prepayment at any time
Lender Fee: 1.0% Origination Fee

Transaction Description:

George Smith Partners secured $11,000,000 of permanent financing for the refinance of a single-tenant medical office building located in Chula Vista, CA. The Sponsor purchased the 23,000 square foot building completely vacant in 2018. Shortly after acquisition, they secured a lease with a local medical user for the entire space. The transition of use from traditional retail to medical office required a large capital improvement budget that the Sponsor wanted to recoup through permanent loan proceeds.

The refinance allowed the Sponsor to fully recapitalize their initial equity investment after completing their business plan. The strength of the Tenant in the market, long-term lease (15 years), and a healthy rental rate all contributed in getting the capital provider comfortable with providing funds in excess of costs.

The 10-year financing carries a fixed interest rate of 3.875% for the entire term and amortizes over 30 years. The financing, sized to 70% LTV, provides two years of interest only payments and is open to prepayment at any time without penalty. The three general partners in the deal are providing recourse which is split evenly between each of them.

Advisors

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

$4,200,000 Cash-Out Refinance for Predevelopment Land Financing on a To-Be-Built 90-Unit Multifamily Project; West Oakland, CA

Rate: 8.99%
Term: 12 months with two 3-month extensions
Amortization: Interest only
LTV: 65%
Prepayment Penalty: None
Lender Fee: 0.5% in / 1% out
Guarantee: Recourse

Transaction Description:

George Smith Partners arranged a $4,200,000 cash-out refinance for predevelopment land financing on a to-be-built 90-unit multifamily property in West Oakland, CA. The Property consists of a 1.5-acre parcel and 35,000 square feet of raw industrial space built in the 1950s that will be demolished at the start of construction. The Property recently obtained entitlements for a 90-unit multifamily development, but the Sponsor required significant capital and about 12 months to complete construction drawings. The Sponsor was seeking a refinance and approached GSP with 30 days of term remaining on their existing land loan. The existing land Lender would not release the good news money earmarked for a successful entitlement that would have been used to fund construction drawings. They were also seeking to charge an extension fee that was significantly above market.

In a very short timeframe, GSP sourced a land lender comfortable with refinancing the existing land loan and providing cash-out to help fund construction drawings. Sized to 65% LTV, including a considerable land step-up for entitlement, the financing is interest only and carries a 12-month term with two 3-month extensions. There is no prepayment penalty, and the Lender origination fee was only 0.5%. The new loan closed in less than 30 days from term sheet execution avoiding a maturity default on the existing loan and enabling the Sponsor to fund construction drawings.

Advisors

Zachary Streit
Senior Vice President

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HOT MONEY
Top MSA Focused LP Equity Provider

GSP identified a LP Equity provider for ground up development, value-add and core properties including anchored & unanchored retail for mixed use, retail or multifamily projects. Target in top MSA’s and assume 60-65% leverage. Gross deal size is $40,000,000 – $150,000,000.

More Hot Money ›

Special Announcement

We are excited to announce that Mike Anderson has a new addition to his family!  He welcomed the birth of Isabelle Tali Anderson on January 25th.  His wife and baby are doing well.


Pascale's Portrait
PASCALE'S PERSPECTIVE
Fed Holds Steady As Yields Dive on Virus Fears

During today’s Fed statement and subsequent comments by Fed Chair Powell there was an expressed concern about the “uncertainties” involving the spread of the Coronavirus. Treasury yields dropped and the yield curve is nearly inverted. The 10 year T is at 1.58%, the lowest in months and just 22 bps above its all time low. With the 3 month at 1.55%, another inversion may be at hand. The Fed also indicated concern about inflation and is very concerned that the U.S. does not become another Japan (ultra low rates and growth for decades with no room to cut rates and stimulate). The statement stressed that the 2.0% “symmetrical inflation target” was not a goal to be “near” but needed to be “reached”. Powell noted that the recent PCE of 1.5% was way too low and many Fed board members have indicated a willingness to let inflation go above 2.0% without raising rates quickly, possibly letting inflation “run for a while” hopefully in conjunction with strong growth. Stay tuned.  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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