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FINfacts™ XXIV – No. 216 | May 6, 2020
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| Prime Rate |
 3.25% |
| 1 Month LIBOR |
 0.25%
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| 6 Month LIBOR |
0.70% |
| 5 Yr Swap |
0.42% |
| 10 Yr Swap |
 0.70% |
| 5 Yr US Treasury |
0.37%
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| 10 Yr US Treasury |
0.70% |
| 30 Yr US Treasury |
1.38% |
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Proceeds: $19,775,000
LTC: 65%
Amortization: Interest Only
Guaranty: Non-Recourse
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Transaction Description:
George Smith Partners, on behalf of Stos Partners , arranged $19,775,000 in bridge financing for the acquisition of a specialty flex industrial asset located in Temecula, CA. The Sponsor was able to negotiate a long-term lease renewal for the primary credit tenant, whose term was nearly expired, creating significant value in the process.
The recently purchased industrial building maintains a mix of specialized uses, as well as an additional near-term vacancy for a smaller flex space, posing both an opportunity and a challenge within the markets. The specialized and varied uses of the building, including laboratory rooms, light manufacturing areas and office/distribution space, required costly buildouts with tenant improvement dollars as the primary tenant expanded into additional space, requiring additional structure. Despite strong market fundamentals, the disruption with the COVID-19 pandemic changed the economy overnight. However, the financials and credit profile of this project only grew stronger and more viable with time.
George Smith Partners was able to identify a capital source that understood both the quality of the asset and the ability of the Sponsor to execute on the intended business plan. Amidst a time of great market volatility and economic uncertainty, the Capital Provider held their original pre-COVID structure and terms.
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Rate: 3.60% Fixed
Term: 7 Years
Amortization: 3 Years Interest Only
Loan-to-Value: 60%
DSCR: 1.20x
Prepayment: 3,2,1
Loan Fee: Par
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Transaction Description:
George Smith Partners placed a $5,575,000 acquisition loan for the purchase of a 38-unit multifamily unit located in the Los Angeles MSA. The loan has a rate of 3.6% for a 7-year term and includes three years of Interest Only payments. The term sheet was signed shortly before the COVID-19 crisis and ensuing economic volatility. Despite these conditions, the original rate and leverage was kept intact.
The Property has several vacant units which represented an opportunity for our Sponsor to add value. The Capital Provider was able to underwrite the income on these units to post-renovation market rents. Market comparable data was used to support the buyer’s conservative rent assumptions. Additionally, the Capital Provider used a market vacancy factor and proposed to withhold 12 months of Principal and Interest reserves at loan closing. GSP pointed out that the loan had IO payments during the first 3 years. After discussion, the reserve was changed to 12 months of interest payments only. The loan closed in less than 60 days.
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WEBINAR
Finance Fridays with GSP: The Changing Landscape of Lending Today | Friday, May 8, 2020 | 10:00 am PT
REGISTER HERE
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Historically, GSP has funded multiple transactions with a bank CMBS originator who is now pre-loading their pipeline with balance sheet executions. Floating rate non-recourse loans are being funded today from $15,000,000 and higher for multifamily, self-storage, industrial and office projects. Sized to a 65% LTV, the two-year term will require monthly debt service from operations on an interest only basis priced at LIBOR plus 300 to 375. There will be no prepayment penalty or exit fee should the bank take themselves out with a CMBS permanent execution once the markets re-stabilize.
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This morning ADP Private Sector Report was sobering to see 20.2 million people lost their jobs in April. By far the largest number since the survey began in 2002, the previous record was 835,000 in 2008. The loss represents all of the jobs created since the financial crisis. As America starts to open, there is hope that April was the bottom and we are climbing out of it. However, the daily human tragedy cannot be ignored or minimized. My heart goes out to all the families that have been affected by this virus. If the economy can be restarted safely, many analysts (including the Fed), believe that the job market can rebound over the next few quarters. However, the days of 3.0% unemployment may be at least a year away. This Friday’s unemployment figures will be closely watched. After all the major volatility in March The 10-year T is now trading in a tight range, in the .60-.75% range and is at 0.70% today. As oil rebounded from negative prices into positive territory, the Treasury yields have increased accordingly as threats of deflation have subsided for now. The CMBS market is thawing as spreads throughout the capital stack are narrowing. New originations at 60-65% LTV with all in rates in the 4% range and many loans will require a 6-month interest reserve. Expect originators to as “CMBS 3.0” begins, expect originators to be about strong collateral and strong sponsors but no hotels currently. We are seeing some bridge lenders start to quote again on well underwritten multifamily transactions. Rates are lower than “hard money” rates, but leverage has been dialed back. The 80+% of cost loans pre-COVID are now 60-65% LTC, but it’s a start. The reinstituting of bank lines to lenders and/or a restart of the CLO market will greatly help. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
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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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Constellation Place
10250 Constellation Blvd., Ste. 2700
Los Angeles, CA 90067
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