FINfacts™ XXIV – No. 217 | May 13, 2020

MARKET RATES
Prime Rate 3.25%
1 Month LIBOR 0.18%
6 Month LIBOR 0.66%
5 Yr Swap 0.35%
10 Yr Swap 0.61%
5 Yr US Treasury 0.32%
10 Yr US Treasury 0.65%
30 Yr US Treasury 1.35%

RECENT TRANSACTIONS
$18,000,000 Non-Recourse Financing for the Recapitalization of a Six Property Retail Portfolio; San Francisco and Los Angeles, CA

Rate: 30-Day LIBOR + 2.80%
Term: Three years plus two 12-month extensions
Amortization: 36 months interest only
Max Loan to Value: 65%
Prepayment: 18-month minimum interest period
Guaranty: Non-recourse
Lender Fee: 1.00%

Transaction Description:

George Smith Partners successfully arranged $18,000,000 in non-recourse financing for a six-property portfolio that includes trophy street-front retail in urban infill locations within the primary submarkets of San Francisco and Los Angeles. The mix of tenants include national investment-grade companies, and quality national, regional and local companies. The assets are strategically located in submarkets with high barriers to entry, strong demand drivers, and quality demographics.

GSP’s extensive lender relationships allowed for a competitive marketing process to create the desired structure to meet the Sponsors current and future growth objectives. GSP created a flexible structure that allowed the Sponsor to acquire new properties to meet their growth objectives. The Capital Partner structured the financing at a 65% loan to value on a non-recourse basis across the assets, with favorable release and acquisition provisions. Exact terms are confidential. The three-year initial loan term is interest only and priced at 280 bps over Libor with two, one-year extension options.

Advisors

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

$1,400,000 of Permanent Financing for 5-Unit Apartment Building; Silver Lake, CA

Rate: 4.05% Fixed
Term: 5 Years
Amortization: 30 Years
LTV: 62%
DSCR: 1.15x
Recourse: Non-Recourse
Prepayment: 1.75% for Years 1-3, 1.00% for Years 4-5
Loan Fee: Par

Overview:

George Smith Partners secured $1,400,000 to refinance a stabilized multifamily building in Silver Lake, CA. The Property, which was built by the Sponsor in 1991, is 100% occupied. The Sponsor has owned and managed the building for over 25 years, but this is currently the only asset in his portfolio. Refinancing provided the ability to achieve a lower interest rate and return equity to increase his liquidity position. The non-recourse financing carries a fixed interest rate of 4.05% for 5 years.

Challenges:

The Sponsor’s lack of real estate experience and non-third-party property management deterred some capital providers from offering non-recourse financing. The Sponsor also had limited pre-closing liquidity which made it difficult to qualify for the most attractive rates. Lastly, the eventual lender required a 6-month interest reserve due to recent uncertainty surrounding the multifamily market.

Solution:

Even though the Sponsor has limited real estate exposure, GSP was able to highlight the strong historical occupancy that the Sponsor has been able to maintain while self-managing the subject property for over two decades. GSP identified a lender that only required liquidity equal to 5% of the loan amount to qualify for their non-recourse program. The interest reserve was structured as pre-paid interest that goes directly to pay the first six months of principal and interest payments. This avoids having a held-back reserve that would only release upon hitting certain covenants in the future.

Advisors

Patrick O’Donnell
Vice President

SPEAKERS CORNER

Save the date – Friday, May 22nd at 10:00 am for our next webinar, THE IMPACT OF COVID-19 CRISIS ON BORROWERS & THE ROAD TO REOPENING CMBS LENDING MARKET.

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

THE CHANGING LANDSCAPE OF LENDING TODAY with Don Griffith, Former Chairman and CEO of Grandpoint Bank, Pat Jackson, President & CEO, Sabal Capital Partners LLC and Timothy Sloan, Former CEO, Wells Fargo & Special Advisor to Fortress Capital.  Jonathan Lee and Shahin Yazdi, Principals/Managing Directors at George Smith Partners moderated the discussion.  CLICK HERE TO LISTEN TO THE WEBINAR

MARKET UPDATE BY SECTOR: RETAIL, MULTIFAMILY, OFFICE & INDUSTRIAL with Bob Hart, President & CEO at TruAmerica, Eric Fleiss, Managing Director & CEO at Regent Properties, Timur Tecimer, CEO of Overton Moore Properties, Steven Usdan, President of CCA Acquisition Company, LLC.  The conversation was moderated by Gary E. Mozer, Principal/Co-Founder at George Smith Partners and Alina Mardesich, Senior Vice President at George Smith Partners. CLICK HERE TO LISTEN TO THE WEBINAR

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


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HOT MONEY
Fixed and Floating Rate Financing Rates Starting at 4%

George Smith Partners is working with a capital provider that will provide fixed and floating rate financing with 70% of cost for multi-family, 65% for all other commercial and 75% for construction. With a focus on Southern California, Las Vegas Washington, Texas, Chicago and New York the portfolio lender offers terms up to 10 years, loan sizes go up to $50,000,000 and pricing starts at 4%. Program highlights include step down prepayment for Bridge, Permanent and Construction financing.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Green Shoots Appearing As Secondary Credit Markets Thaw

Some good news on lending as the first CMBS securitization since pre-crisis (early March) executed better than expected on Friday. The pool consisted of above average quality loans originated pre-crisis, with no hotels and very little retail. There was oversubscribed demand and spreads were tighter than expected throughout the bond classes. CMBS originators are cautiously optimistic as new loans are being quoted. Look for leverage in the 65% range, some reserves may be required at loan closing and extra scrutiny on sponsorship. Underwriting standards will be more conservative. As CMBS originates, we have seen some life companies narrow their spreads to win business on good quality real estate.

Some more “green shoots” are visible as the bridge lenders are starting originations also. The warehouse lending market (big banks lending to debt funds) has started up again, with more cautious leverage. The warehouse lenders will also monitor loan collateral more closely. Multifamily, office, industrial bridge lending is back with leverage in the 65-70% range with spreads in the L+350-450 range (as opposed to 80+% stretch bridge loans at L + 275-325 pre-COVID). As credit becomes more available, the focus will be on property specifics (location, resilience of the income, etc). Fundamentals going forward in this environment will be critical, and many of the fundamentals are dependent on the virus spread and hopes for treatments/vaccine.

Fed and Data: Fed Chair Powell’s remarks today shook markets. He called on Congress and the Administration to authorize further “fiscal support” or risk “long term damage” to the economy. He contextualized the recent unemployment reports with a stark statistic from the Fed’s recent survey, “40% of U.S. households making less than $40,000 per year lost a job in March”. Powell also (again) pushed back on suggestions that the U.S. implement negative interest rates.

Other Data: Yesterday’s CPI report contained unprecedented numbers: negative 0.8% CPI from March to April, the lowest since December 2008. However, food prices saw there biggest one month jump since April 1974 at 2.6%. The overall CPI was down due to big drops in clothing, energy and other categories. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

More Perspectives ›

GSP is proud to be supporting the Union Rescue Mission in their fundraising efforts during this difficult time. Please tune in this Saturday to KCAL-9 at 7PM for a live auction supporting URM as it faces the homelessness challenges stemming from Covid-19.

 

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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