FINfacts™ XXIV – No. 207 | March 4, 2020

MARKET RATES
Prime Rate 4.25
1 Month LIBOR 1.38
6 Month LIBOR 1.25
5 Yr Swap 0.80
10 Yr Swap 0.98
5 Yr US Treasury 0.76
10 Yr US Treasury 1.03
30 Yr US Treasury 1.67

RECENT TRANSACTIONS
$23,750,000 Bridge Financing for a 229-Key Hilton Branded Hotel in Ramp Up; Minneapolis, MN

All terms Confidential

Transaction Description:

George Smith Partners arranged $23,750,000 in bridge financing for the refinance of a 229-key, full-service hotel located in Downtown Minneapolis, Minnesota. The Hilton branded hotel is proximal to major demand drivers and includes a partnership with a Fortune 500 company, with headquarters across the street from the asset. The Property, built in 1986, underwent a PIP in 2017. The bridge facility allowed the Sponsor to pay off existing debt, which had an approaching maturity date in addition to completing the ramp-up period, forecasted to finish in 2020.

GSP conducted a full marketing process and was able to leverage market interest to secure the most competitive terms available by focusing attention on the superior location as well as the Sponsor’s familiarity and confidence in the market. The Sponsor developed, owns, and operates a 290-key hotel less than a mile for the Subject Property. The selected Capital Provider structured around the current market softness, recognizing the strength of the Sponsor and their ability to successfully operate hospitality properties.

Advisors

Malcolm Davies
Principal/Managing Director
Zachary Streit
Senior Vice President
Evan Kinne
Senior Vice President
Alexander Rossinsky
Vice President
Rachael Lewis
Vice President
Aiden Moran
Assistant Vice President
Maxwell Shedlosky
Assistant Vice President
Brandon Asherian
Analyst

$10,800,000 Refinance of 4-Property Portfolio; Fixed For 7 Years Between 3.2 – 3.4%; Full-Term Interest Only; All Third-Party Costs Waived; Los Angeles, CA

Rate: 4 loans with rates between 3.21% and 3.40%
Term: 7 years fixed
Amortization: Full-Term Interest Only
LTV: 55%
DCR: 1.40x
Prepayment Penalty: Yield Maintenance
Lender fee: 0% origination fee and all third-party costs waived
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners placed the $10,800,000 refinance of four stabilized Los Angeles multifamily properties totaling 86 units. The interest rates varied between 3.21% and 3.40%, depending on the affordability of the units at each property. The loans have full-term interest only payments.

The Sponsor completed renovation budgets which were used to separate out capital expenditures from recurring R&M expenses. This adjustment helped to provide support for the Lender’s underwritten cash flow and property values. Two of the Properties moved into a lower LTV tier which resulted in an interest rate reduction post-application. One of the four Properties recently achieved stabilization, which meant the Property only had one month of operating history. GSP emphasized the strength of the Sponsor and the LA market and the Lender was able to use a “T-1” income statement. The Lender waived all charges for closing costs and third-party reports, which typically cost more than $5,000 per transaction. This resulted in savings of more than $20,000 across the whole portfolio. The Property Condition Reports showed some minor deferred maintenance items, but the Lender allowed most of them to be resolved post-closing.

Advisors

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

$2,400,000 Refinance of Unanchored Strip Retail Shopping Center with Special-Use Tenant; Murrieta, CA

Rate: 4.16% Fixed
Term: 7/25; 9 months IO
LTV: 46.3%

Transaction Description:
George Smith Partners secured a $2,400,000 recourse loan for the refinancing of a multi-tenant retail center, “The Olivewood Shopping Center” in Murrieta, CA. The Sponsor purchased six parcels totaling four acres in 2010. The construction of five retail buildings was completed in 2013 and the Sponsor sold three buildings prior to the financing. One remaining building is 100% leased to four retail tenants; the other building and adjacent lot have been ground leased to a carwash tenant. There was no debt on the Property and loan proceeds were used to buy out the ownership interest of the other partners.

Challenges:
Over half of the income for the Property was attributed to a carwash ground lease which is a special purpose use that some lenders are uncomfortable financing. While the ground lease was signed at loan closing, the rent would not commence until mid-2020. Also, in place rents did not support the full loan request.

Solution:
A portion of the loan was funded at closing and sized to in-place rents with a future funding occurring when the carwash takes occupancy and begins paying rent. The Sponsor will not pay interest on the future funded portion of the loan until it is disbursed.

Advisors

Scott Meredith
Senior Vice President
John Thrall
Assistant Vice President

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HOT MONEY
Non-Recourse Land Financing

George Smith Partners is working with a national lender providing non-recourse financing for properties in all phases of value creation from land through fully performing assets. Funding transactions from $20,000,000 to $75,000,000 this lender focuses on the top 25 markets in the U.S. With the ability to advance up to 85% of development value, pricing starts at L+550 – L+800 with terms up to three years and extension options available.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Fed Is All In – well, almost – Lenders Struggle to Quantify and Price Risk as Indices Drop to Unprecedented Levels

Yesterday’s emergency 0.5% rate cut by the Fed was both expected and surprising. The cut was expected and it seemed sudden in its timing. Equity markets plummeted in a “buy the rumor, sell the news” scenario aka “we want the Fed to cut rates, oh my gosh, the Fed cut rates, things must be worse than we thought!” Also, investors remembered that the Fed does not have a vaccine, they cannot solve coronavirus with monetary policy! Since 1998, the Fed has announced emergency (non meeting) rate cuts 8 times (Russian debt crisis 1998, dot.com crash 2001, 9/11 2001, and during the financial crisis). Prime Rate is now 4.25%, 30 day LIBOR is 1.38, and the 30 year is 1.67%. LIBOR is expected to go to about 1.15% soon. The 10 year T hit an all time low of 0.92% yesterday. This prompted some banks to issue research papers asking, “could U.S. T rates go negative?” Capital Markets: The Agency lenders instituted floors, Fannie Mae floored the 10 year T at 1.30%, then floored again at 1.10%. 10 year agency loans are being priced at about 3.40-3.60% all in. CMBS: As one originator said, “We are in uncharted territory, everyone is watching everyone else.” Spreads for full leverage loans are anywhere from 220-275. All-in coupons 3.25-3.75%, although some low leverage loans are being quoted sub 3.00% all-in. Another originator commented, “Volatility is high, but I am quoting some all time low coupons.” Hotel loans are being closely scrutinized due to the concerns about the impact on coronavirus on travel. 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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