FINfacts™ XXIV – No. 203 | February 5, 2020

MARKET RATES
Prime Rate 4.75
1 Month LIBOR 1.67
6 Month LIBOR 1.74
5 Yr Swap 1.47
10 Yr Swap 1.61
5 Yr US Treasury 1.46
10 Yr US Treasury 1.65
30 Yr US Treasury 2.13

RECENT TRANSACTIONS
$9,400,000 Construction Financing for Luxury Apartment Development; Los Angeles, CA

Rate: 1-Month LIBOR + 7.50%
Term:
28 Months
Amortization:
Interest Only
LTC:
56%
Lender Fee: 1% in / 1% out
Guaranty:
Non-Recourse

Transaction Description:
George Smith Partners successfully arranged $9,400,000 in non-recourse construction financing for the development of a 15-unit luxury apartment building in West Los Angeles. The Property will be comprised of a mix of 1-bedroom and 2-bedroom units and will include 28 parking spaces. The Class A asset sits in a prime location that adjoins some of Los Angeles most sought-after submarkets. Upon completion tenants will have world class views and easy access to major thoroughfares of the City.

Problem:
The Sponsor has owned the site for over twenty years and after relocating existing tenants to make way for the construction of the new luxury building, he raised an existing 16-unit apartment building. Despite the low land basis, at a total cost at over $1 million per door, it was difficult to find comparables to justify the completed value in support of the requested loan amount.

Solution:
GSP accessed its extensive lender network to identify a best-in-class construction lender to provide non-recourse construction financing for the Sponsor. GSP’s longstanding history with this lender allowed for a flexible and streamlined closing process that was favorable to the Sponsor’s project timeline. GSP was able to demonstrate to the Lender that as a family owned, multi-generational asset, the tight spread between development cost and value was a less important metric than for a merchant builder-built building, particularly with a significant equity investment.

Advisors

Gary M. Tenzer
Principal/Co-Founder

$5,700,000 Non-Recourse Acquisition Bridge Financing for a 2-Property Multifamily Portfolio; 80% LTC and 7.5% Debt Yield; Gardena, CA

Rate: 6.90%
Term: 3 Years
Amortization: Interest only
LTC: 80%, including future funding
Guarantee: Non-Recourse
Lender Fee: 1% in / no exit fee
Prepayment Penalty: 12-month interest guarantee

Transaction Description:

George Smith Partners arranged $5,700,000 in non-recourse acquisition bridge financing for a two-property value-added multifamily portfolio in Gardena, CA. The two 1960’s vintage properties had significant deferred maintenance and below market rents. The Sponsor’s business plan was to reposition the Property and release the units at market rents. Maximum proceeds, despite a tight debt yield, and non-recourse were priorities.

George Smith Partners sourced a lender familiar with the market and willing to size the loan to a 7.5% debt yield, which resulted in 80%LTC. The loan, which offers an attractive parri-passu funding structure, includes future funding for a full gut renovation of unit interiors and an exterior upgrade. The three-year bridge loan is interest only and carries a fixed interest rate of 6.90%. Interest is not charged on the holdback until funds are drawn. The lender fee was limited to a 1.00% origination fee with no exit fee. The Lender did not charge a legal fee and closed the transaction in 30 days from term sheet execution.

Advisors

Malcolm Davies
Principal/Managing Director
Zachary Streit
Senior Vice President
Evan Kinne
Senior Vice President
Ed Steffelin
Senior Vice President
Alexander Rossinsky
Senior Vice President
Aiden Moran
Assistant Vice President
Maxwell Shedlosky
Assistant Vice President

Non-Recourse Cash-Out Refinance for a Multifamily Property; Fixed at 3.60% For 5 Years; Los Angeles, CA

Rate: Fixed at 3.60% for 5 years then floats at 6 Month LIBOR + 2.25%
Term: 30 years
Amortization: 30 years
Prepay: 3,2,1,0
LTV: 65%
DCR: 1.15
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners secured a Non-Recourse refinance loan for a 5-unit multifamily property plus one 5-bedroom single family residence in Los Angeles. The loan is fixed at a rate of 3.60% for five years. The Sponsors purchased the Property just over a year ago. Since acquisition, they completely rebuilt the single-family home and renovated one of the apartment units. A lease was signed for the single-family home at nearly $10,000 per month. This comprised more than half of the monthly income at the Property. While discussing the transaction with capital providers, GSP found that several of them declined the deal due to the high concentration of income in one unit. Another lender marked down the rental income of the 5-bedroom unit to a lower monthly rate. This resulted in proceeds that were much lower than GSP’s request.

The selected lender was comfortable with the unit mix at the Property and included the full amount of income from the signed leases. An appraisal provided support for the high rental rate of the 5-bedroom home, which was supported by comps in the submarket. Although loan proceeds were almost as much as the Borrower’s cost to purchase the Property, the Lender gave credit for the considerable capital expenditures that the Borrower had invested in renovations. As a result, proceeds were not limited by a LTC constraint. The Lender was able to provide a rate lock at application.

Advisors

Shahin Yazdi
Principal/Managing Director
Jonathan Lee
Principal/Managing Director
Matthew Kirisits
Vice President
Paul Monsen
Vice President
Kyle Redmond
Analyst

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HOT MONEY
National Portfolio Financing for Stabilized Assets with No Prepayment Penalties

George Smith Partners is working with a national portfolio capital provider structured with no pre-payment penalty.  Transactions in primary and secondary markets from $2,000,000 to $15,000,000 fixed for 5+5 and seven year terms.  This recourse lender will advance to 75% of appraised value assuming a 1.25 DSCR on in-place cash flow for income properties and offers a 30 year amortization.  Most loans close within 60 days and there is no minimum interest or prepayment penalties.  Application fees and bank closing costs (excludes 3rd party charges) are waived on new opportunities for the next three months.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Treasury Yields Spike and Equities Rally on Old Data

Last Friday the 10 year closed at 1.50% just 14 bps above its all time low, as coronavirus fears spurred a flight to safety. This week’s upbeat data turned things around as “risk-on” returned. The ADP employment report was significantly more bullish than expected. Note that the manufacturing sector has been lagging in recent months while employment and consumer metrics have been bullish. After Monday’s ISM Manufacturing Index report and yesterday’s Factory Orders report exceeded expectations, markets really took off. The 10 year T jumped to 1.65%. Various unconfirmed reports of potential treatments emerging for the coronavirus added to the rally. However, note that these reports are based on pre-virus data and Asian supply chains are critical to that sector. So there is some caution as the effects and scope of the virus is yet to be quantified. 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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