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FINfacts™ XXIV – No. 236 | September 23, 2020
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| Prime Rate |
 3.25% |
| 1 Month LIBOR |
 0.15%
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| 6 Month LIBOR |
0.27% |
| 5 Yr Swap |
 0.35% |
| 10 Yr Swap |
0.71% |
| 5 Yr US Treasury |
0.27% |
| 10 Yr US Treasury |
0.68% |
| 30 Yr US Treasury |
1.42% |
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Rate: 5.00%
Term: 48 months
Amortization: 32-months interest only; 27.5-year amortization thereafter
LTC: 72.5%
Prepayment: None; open in whole or in part at any time
Guaranty: Full repayment guarantee that burns down to a 50% repayment guarantee upon certificate of occupancy
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Transaction Description:
George Smith Partners successfully placed $31,500,000 (72.5% LTC; 70%LTV) in construction financing to fund the ground-up development of a 240-unit, workforce housing project in an infill neighborhood of tertiary market, Sheboygan, Wisconsin. GSP leveraged its diverse lender relationships to source a construction loan for this large project located in a small market during the peak of the COVID-19 pandemic. GSP was able to focus lenders on sponsorship quality and how the project was tailored to take advantage of Sheboygan’s strong market fundamentals. This includes an insatiable demand for workforce housing driven by numerous manufacturers being in the county including Kohler, Sargento, and Johnsonville among others. A Tax increment financing (TIF) district was created to offset a portion of the Project’s costs, which added another layer of complexity as GSP was directed to source a lender that would also underwrite the projected TIF cashflows to increase the construction loan leverage.
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Despite COVID concerns, George Smith Partners is actively placing multifamily financing for acquisition, refinancing and ground-up development to mini-perm requests with a national portfolio capital provider. This lender offers local decision making and all the advantages of a small bank type financing on a national level. Loan amounts are sized from $2,000,000, up to $15,000,000 to 70% of capitalization. Their construction program automatically rolls into a five-year mini perm upon Certificate of Occupancy. With only a 90-day interest prepayment penalty if refinanced at stabilization, this offers take-out security yet provides flexibility for future capital market conditions. The prepayment penalty is waived in the event of a sale.
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One of the October 1 “cliffs” is solved as an approved continuing resolution is on its way to being approved, keeping the Government open until mid-December’s “lame duck” session. As partisanship battles flare and with no serious negotiations underway, prospects for another round of stimulus are fading. As Fed Chair Powell and Treasury Secretary Mnuchin appeared before Congress this week, Powell reminded legislatures that he does not have “spending power” and fiscal policy is their responsibility. The usual “needs list” was discussed by lawmakers: reallocations of unused Cares Act funds, money to schools, more PPP aid to hard hit industries (travel, restaurants, etc). Mnuchin even discussed PPP funding to help landlords make mortgage payments and/or make up for lost rent payments due to the pandemic. Economic bright spots include a rebound in household spending, brisk home sales, increased home mortgage application volume and manufacturing picked up to a 20 month high.
Loan Rates: The 10 year treasury has been trading in a very tight range for weeks (today at 0.67%), securitized loan markets are rallying and spreads are tightening. This continuing “perfect storm” is resulting in 10 year loan rates for agencies and CMBS around 3.00% with some loans pricing in the 2’s. Unless rates go negative, its hard to imagine coupons any lower. 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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