FINfacts™ XXIV – No. 204 | February 12, 2020

MARKET RATES
Prime Rate 4.75
1 Month LIBOR 1.65
6 Month LIBOR 1.72
5 Yr Swap 1.45
10 Yr Swap 1.59
5 Yr US Treasury 1.44
10 Yr US Treasury 1.63
30 Yr US Treasury 2.09

RECENT TRANSACTIONS
$23,500,000 Construction Loan Take-Out of the 30-Acre FBO and Airplane Hangars Adjacent to the Van Nuys Airport

Rate: P-1.25%; 75% to be SWAPed currently at 3.58% Fixed for 16 years
Term: 16 Years
Amortization: 1 Year IO; 15 Years thereafter
Prepayment: SWAP breakage
Fee: 25 Basis Points

Transaction Description:

George Smith Partners placed a $23,500,000 construction loan take-out for the 30-acre development of the piston driven airplane hangars and FBO (Fixed Base Operations) adjacent to the Van Nuys Airport. Although not yet completed and four or five months from the final certificate of occupancy, our perm lender agreed to fund without the requirement of a hold-back due to the ample cash flow in place at the time of the loan funding.

Van Nuys is the busiest general aviation airport (non-scheduled flights) with over 800 operations daily (take-off or landing). It services LAX as an over-flow for smaller turbine and all piston driven air traffic. This location is vital to the City Department of the Los Angeles World Airports (LAWA) that administers this airport and owns the land surrounding all sides of the two runways.

At funding, the loan floats at Prime less 1.25% but 75% of the outstanding balance will be SWAPed at a future date; currently at 3.58% for the full 16-year term. The remaining 25% balance will continue to float. Structured as a self-liquidating loan, it will amortize over 15 years after the first year of interest only. The loan is open for future advances during the IO period if requested.

Advisors

Gary E. Mozer
Principal/Co-Founder
David Stepanchak
Senior Vice President

$10,900,000 Cash-Out, Acquisition, Reposition on a 50-Unit Multifamily Property; Los Angeles, CA

Rate: 7.99% with 4.99% pay rate
Term: 18 months
LTV: 70%
Recourse: Carve-Outs Only
Fees: 1.0%
Prepayment: None; no exit fee

Transaction Description:

George Smith Partners placed a $10,900,000 non-recourse loan for the refinance of an underperforming stabilized 50-unit multifamily community in Los Angeles. The Sponsor recently acquired the asset at approximately 50% below market from an affiliate party and GSP was able to facilitate approximately $3,000,000in cash out proceeds at closing. A portion of the loan proceeds will be used to renovate units as they become vacant in order to achieve current market rents. GSP identified a non-institutional lender who was comfortable with the cash out proceeds and who understood the history and dynamics of this non-arms-length acquisition. The non-recourse loan is fixed for 1.5 years with a 7.99% interest rate and 4.99% pay rate.

Advisors

Alina Mardesich
Senior Vice President

Full Term Interest-Only Non-Recourse Permanent Financing on a Newly Redeveloped Multi-Tenant Retail Property; Utah

Rate: 3.94% Fixed
Term: 10 Years
Amortization: Interest-Only
Loan to Value: 62.5%
Prepayment: Yield Maintenance
Lender Fee: None

Transaction Description:

GSP successfully placed $4,000,000 of non-recourse, ten-year fixed-rate first mortgage debt collateralized by a 48,000 square foot retail box newly demised into four tenant suites. The improvements are 100% leased to two gym users, a restaurant, and an auto parts store. GSP sourced a lender comfortable with providing a full-term Interest-Only loan on the collateral despite both gym tenants, which represent 64% of income and 62% of building square footage in the aggregate, having newly signed leases and therefore no sales history at the Property. Additionally, GSP worked with the Lender to close the loan prior to the smaller gym tenant (11% of income and 14% of building square footage) completing its buildout and opening for business. Loan proceeds were subject to an 8.75% debt yield and the Interest-Only loan has a fixed coupon of 3.94% for the ten-year term.

Advisors

Gary E. Mozer
Principal/Co-Founder
Michael Anderson-Mitterling
Senior Vice President
Kyle Howerton
Senior Vice President

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HOT MONEY
Non-Recourse Bridge and Permanent Financing up to 95% LTC

George Smith Partners is currently placing non-recourse stretch senior loans, subordinate debt, preferred equity, JV equity and stretch senior loans for all major property types nationwide. This Lender offers up to 95% LTC for stretch senior loans (min $60,000,000 total capitalization) and for preferred equity / JV equity (min $20,000,000) with terms ranging from two to ten years.

More Hot Money ›

Impressions and Take-Aways from 2020 MBA CREF

 

The GSP team attended the annual MBA CREF in San Diego. In the course of two days, the GSP team met with lenders from across the country representing the full spectrum of the capital stack. This included GSP specific lender presentations, meetings at the conference, evening receptions and running into familiar faces. The overriding narrative: A huge amount of capital chasing not enough deals (much like last year and the year before). As one lender remarked: “Last year we said interest rates and loan rates were rock bottom but now we are sub-rock bottom.” The indices are dropping (treasuries, swaps, LIBOR), and the new consensus is that risk adjusted spreads are “going out the window” as lenders compete for deals.

Bridge Lenders: floating rate bridge loan spreads used to be stratified ranging from 2% to 6% over LIBOR depending on transaction dynamics. Now, “that’s so 2017” as a “race to the bottom” is occurring with lenders bunched up at 2% to 4% over LIBOR and more and more pushing to the bottom of that range. So, how do lenders differentiate? Deal Structure, credit officers are casting a wider net” (one lender remarked: “we will do some funky stuff”), source of capital (Mortgage REIT vs CLO execution vs leveraged debt fund), flexibility, certainty of execution (we met with senior committee members that stressed their lean and efficient approval process), borrower costs (exit fees can be waived). Warehouse line rates are compressing for debt funds, contributing to tighter spreads on loans and increased leverage. Lenders are more willing to listen to “stories” example: “we will look at heavier risk for strong sponsors.” Also, more heavy bridge loans (major renovation, unoccupied properties) are being priced almost like “light bridge.” As one lender remarked: “No cash flow, no problem, for the right deal.” Geographic: Secondary and tertiary markets are being considered and the right deals are being priced tightly. Yet many high yield lenders are still in business: now offering high leverage non-recourse construction loans or going very high up the capital stack. The net needs to widen as nearly every lender indicated that their marching orders are to increase production over 2019.

CMBS: 10-year CMBS bonds are now trading in the Swaps + 75 range (this means the bond buyer is getting a 2.50% coupon, amazing considering that the 10 year treasury was 2.50% in April 2019!). CMBS lenders are pitching servicing and certainty of close “we buy our own B-piece.” Spreads remain tight as the CMBS and CLO markets are “hot”, as one major originator remarked about bond buyers: “Everyone wants to buy the dip, so there is no dip.”

2020 Outlook: Political uncertainty: investment sales brokers are indicating that they are seeing a lot of activity before the political conventions in the summer and the November election and then “who knows” The coronavirus situation is on people’s minds, it poses potential risks to hotels, retail, supply chain, etc. (“Is this the black swan?”), it also may spur the Fed to cut rates.


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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