FINfacts™ XXIV – No. 213 | April 15, 2020

MARKET RATES
Prime Rate 3.25%
1 Month LIBOR 0.79%
6 Month LIBOR 1.16%
5 Yr Swap 0.50%
10 Yr Swap 0.74%
5 Yr US Treasury 0.35%
10 Yr US Treasury 0.64%
30 Yr US Treasury 1.27%

RECENT TRANSACTIONS
$61,392,000 Refinance of a 207-Acre, Two Million Square Foot Pharmaceutical Campus in Tri-State Area

Term: Three years plus two 12-month extensions
Amortization: Interest Only during Initial Term
Max Loan to Stable Value: 60%
Prepayment: 24 months minimum interest
Lender Fee: 1%

Transaction Description:

George Smith Partners arranged $61,392,000 in first mortgage debt for the refinance of a mixed-use office, industrial and lab campus in the Tri-State area (New York, New Jersey, Connecticut). The corporate user developed the campus in phases between 1906 and 2008, and the improvements consist of over two million square feet of laboratory, pharmaceutical manufacturing, office and support buildings including a central utility plant. The user still owns some buildings, and leases others on the campus. The Sponsor purchased the asset in 2015 with a long-term redevelopment goal to create a life sciences destination that will build on the existing laboratory, manufacturing, and office uses. The Property will ultimately feature shopping, dining, meeting and educational experiences as part of a cohesive “work/live/play” community.

GSP sourced a loan from a capital provider that was able to underwrite in-place income with flexibility for an ever-evolving business plan. The three-year, interest only initial loan term is structured as an initial advance of $42,940,000 with the remaining $18,452,000 future funded for approved capital expenditures and tenant improvements/leasing commissions for to-be-leased space. No interest is due on funds until drawn. The loan is open for prepayment at any time subject to a 24-month minimum interest payment.

Advisors

Gary E. Mozer
Principal/Co-Founder
Akash Rohera
Assistant Vice President

Abbot Kinney Co-Working Creative Office Conversion Bridge-to-Permanent Financing; Venice, CA

Rate: 4.75% fixed (locked at application)
Term: 7 Years
Amortization: Interest only for 24 Months; 25-year amortization thereafter
Yield Maintenance: None
Recourse: Entity-level only

Transaction Description:

George Smith Partners placed bridge to permanent financing for the creative office conversion of a co-working space on Abbot Kinney in Venice, California. GSP sourced a lender comfortable with the trophy project’s high basis per square foot and co-working business model. The Project is slated to be the only co-working option on Abbot Kinney, one of the most coveted retail thorofares in Los Angeles. The 4.75% fixed interest rate was locked at application and featured 24 months of interest only followed by 25-year amortization for the remaining 5-year term. The loan was recourse to an entity, as no warm body was available and carries no prepayment penalty.

Advisors

Zachary Streit
Senior Vice President

SPEAKERS CORNER

WEBINARS

If you missed any of our recent webinars, below are links to hear the recordings.

George Smith Partners and UCLA Real Estate Alumni Group (REAG) hosted the webinar, MARKETS IN THE DAYS OF COVID-19 with Tom Barrack of Colony Capital and Eric Sussman of Clear Capital, LLC and Adjunct Professor at UCLA Anderson School of Management.  Evan Kinne, Senior Vice President of George Smith Partners introduced the speakers and facilitated the questions during the webinar. CLICK HERE TO LISTEN TO THE WEBINAR

HOSPITALITY THOUGHT LEADERSHIP: STATE OF THE MARKET with Malcolm Davies of George Smith Partners, David A. Sudeck of Jeffer Mangels Butler & Mitchell LLP, Daniel MacDonnell of Cushman & Wakefield, and Tony Malk of Hodges Ward Elliott. CLICK HERE TO LISTEN TO THE WEBINAR

COVID-19 THE MACRO ECONOMY & CRE with Stuart A. Gabriel, Arden Realty Chair Professor of Finance and Director, Richard S. Ziman Center for Real Estate at UCLA and JP Conklin, Founder and President of Pensford. Gary M. Tenzer, Principal/Co-Founder of George Smith Partners and David Pascale, Senior Vice President of George Smith Partners moderated the discussion.  CLICK HERE TO LISTEN TO THE WEBINAR


Pascale's Portrait
PASCALE'S PERSPECTIVE
Not a Light Switch But a Gradual Reopening

Rates: Worldwide Indices remain at historic lows. The 10-year T is at 0.64% with the comparable German Bond at -0.46%. The 2-year T is at 0.20%. 30-day LIBOR is easing closer to the Fed Funds rate, down to 0.79%. Note that SOFR, the expected replacement is at 0.06%. These rates are indicative of a Federal Reserve flooding the markets with liquidity and buying a vast array of debt securities. Note that most new loan quotes are untethered from these indices as we are seeing most loans quoted as a coupon (with the notable exception of the agencies, Fannie Mae and Freddie Mac)

The Data: We are seeing the first monthly reports quantifying the damage from the Covid crisis. Today’s news included a record drop in retail sales of 8.7% including a 26% drop in restaurant sales. Other key industries hit hard were apparel (-50%), gas stations (-17.2%). Gains were seen in grocery stores and drug stores, on-line ordering and large retailers such as Walmart and Costco. Industrial reports show factory output hitting a low that has not been seen since 1946. March was a partial shutdown month; April’s reports are anticipated to be lower still. Major banks are reporting huge drops in earnings for Q1 2020 and are allocating large cash reserves in anticipation of a very rough second quarter.

The Near Future: Hopeful signs are emerging. Social measures seem to be “flattening the curve” both nationally and in some of the hot spots. The anticipation of the reopening of society over the next few months and the breadth and shape of the economic recovery is a major question with no precedent. No doubt things will be different. Governor Newsom of California discussed restaurants reopening with every other table empty, disposable menus, masked and gloved employees, and extreme cleaning. An air travel group asked, “Is this the end of the middle seat?” This “gradual reopening” with small businesses and large corporations operating at partial capacity will have economic and social consequences. Example: Is a shopping center with many businesses operating at 40-60% of Pre-COVID levels going to be able to collect full rent and pay debt service? Consumer spending accounts for approximately 70% of US economic growth. The ramp up to full recovery will be highly dependent on consumer confidence and behavior. That is tied into the science: more robust and available testing, treatments, and the widespread availability of a vaccine.

CRE Capital Markets Update with a focus on secondary markets: There are some glimmers of hope. Last week’s announcement that the Fed’s TALF facility was eligible to purchase legacy CMBS bonds (issued before March 23) and non CRE CLO bonds was a “good start”. CMBS AAA spreads tightened to 150-170 range over 10 year Swaps (note that at their tightest they were about Swap+80, so this isn’t terrible). The first new issue pool since the crisis hit composed of all investment grade collateral (low leverage, office and industrial dominant) may go to market in late April or early May. The CLO market is a critical component of the bridge lending as it multiplies available liquidity for lending from debt funds, banks, and other floating rate lenders. Industry councils are pushing for further expansion of TALF to include new issue CMBS and real estate CLOs as that would most effectively jump start some origination in these sectors. Bottom line is that portfolio lenders do not have the allocations or willingness to service the entire commercial real estate market efficiently. Government is listening as CRE is a major contributor to employment and GDP.

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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