FINfacts™ XXIV – No. 239 | October 14, 2020

MARKET RATES
Prime Rate 3.25%
1 Month LIBOR 0.15%
6 Month LIBOR 0.24%
5 Yr Swap 0.39%
10 Yr Swap 0.76%
5 Yr US Treasury 0.30%
10 Yr US Treasury 0.73%
30 Yr US Treasury 1.50%

RECENT TRANSACTIONS
$16,100,000 Non-Recourse Acquisition Bridge Financing for a 30-Unit Trophy Multifamily Value-Added Project; West Los Angeles, CA

Rate: 1-Month Libor + 500 basis points
Term: 36-month term with two 6-month extension options (6.00% floor rate)
LTV: 70%
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners arranged $16,100,000 in non-recourse, acquisition bridge financing on a 30-unit trophy multifamily property in West Los Angeles, California. The Property featured significant below-market rents, deferred maintenance, and physical vacancy (in part due to roommates that decided to downsize in light of COVID-19). The value-add business plan will involve a large capital expenditure budget to renovate the Property’s exterior and units, and reposition the asset utilizing a specialist property manager focused on providing family-oriented housing product with amenities like technology integration, childcare services, and community programming. The Sponsor’s expertise coupled with the Property’s trophy location created a competitive lending environment despite the ongoing pandemic. GSP ran a robust process including marketing the deal to over 70 lenders and fielding multiple lender proposals. The non-recourse financing was sized to 70% LTC and featured a rate of 1-Month Libor plus 500 basis points for a three-year term plus extensions.

Advisors

Malcolm Davies
Principal/Managing Director
Zachary Streit
Senior Vice President
Alexander Rossinsky
Senior Vice President
Aiden Moran
Vice President
Drew Sandler
Vice President
Brandon Asherian
Assistant Vice President

$3,000,000 Line of Credit for Multi-Phase, Mixed-Use Development; Moreno Valley, CA

Rate: Prime + 0.5% (3.75%)
Term: 12 Months
LTV: 43% (as-is land value)
Prepayment: None
Guaranty: Carve-outs to entity, no warm body

Transaction Description:

George Smith Partners placed a $3,000,000 line of credit collateralized by two parcels of land totaling 10 gross acres out of a three-phase, mixed-use, master planned community in Moreno Valley, California. The master development is on 19 gross acres and consists of 237 apartments and duplexes and a 22,000 square-foot office and retail center. The funds will go towards phase two horizontal work as well as utilities work for the shared road between phases one and two. This was a City mandate in order to issue a certificate of occupancy for phase one, comprised of 125 units and expected delivery by end of the year.

Development around Moreno Valley has been slow until recently and while COVID-19 did not materially impact the multifamily market in the area, many lenders were hesitant to lend there. The Sponsor is a major developer and real estate owner throughout Riverside County. GSP recently sourced refinance proceeds on other assets for the Sponsor and was able to utilize this relationship to get the same lender comfortable in providing the line of credit. GSP focused on the market demand, Sponsor’s credentials and potential repeat business for the Lender. The Sponsor was pleased with the line of credit facility as it will incur interest only when funds are drawn. The alternative land loan options would have been significantly more expensive and very difficult to achieve.

Advisors

Antonio Hachem
Principal
John Choi
Assistant Vice President
Wendy Wang
Vice President
Cornelius Baliukonis
Analyst

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HOT MONEY
Bridge, Construction and Permanent Funding During COVID

George Smith Partners is currently originating and closing fixed rate loans for bridge, permanent, and construction projects with an institutional portfolio lender. The capital provider offers aggressive pricing starting at 3.50% for 3- and 5-year terms, Interest Only and up to 70% LTV for multifamily properties. This lender has a strong appetite for medical offices and owner-occupied, multi-tenant and credit tenant industrial properties. Investor owned commercial real estate rates start at 3.75% and can go up to 60% of value.

More Hot Money ›

Announcement: Zack Streit has been selected as one of Real Estate Forum's Fifty Under 40

Please join us in congratulating Zack Streit for being named one of Real Estate Forum’s Fifty Under 40!

Click here for the full article.


Pascale's Portrait
PASCALE'S PERSPECTIVE
Treasury Yields Drop, CRE: Focus on Office and Location Pandemic Trends

The 10 year Treasury was flirting with 0.80% last week about 15 bps above its recent average level. Interestingly, vaccine concerns led to a 5 bp drop to 0.72%. Reports from J&J and Eli Lilly regarding delays in progress on COVID vaccines and treatments reminded investors that the road to “normal” is bumpy. This leaves Pfizer and Moderna as the only two major vaccine candidates to have any chance at approval by year end. These developments remind us that regarding commercial real estate, any return to pre-pandemic normality will be well into 2021 and many changes may be permanent. A recent analysis by Cushman and Wakefield predict an increasing of office vacancies well into 2022 with a return to pre-COVID levels being achieved in 2025. The work-from-home movement has been accelerated by COVID: permanent at home workers increased from 5-6% pre-COVID to 10-11% today. The “hybrid” worker is on the rise. Pre-COVID hybrids accounted for 35% of office workers. Today this number is 50%. The hybrid worker splits working time between the office and home.

Another major trend is affecting the real estate mantra “location, location, location”. The pre-pandemic location trend was driven by urbanization and densification around downtown cores of major cites. As mentioned by Peter Grant in today’s WSJ, the urbanization trend is being reversed. Downtown offices and attractions are less alluring to residents today. This has led to a flight to the suburbs and other secondary locations, as residents seek more space. This is not expected to “snap back” with the availably of a vaccine. 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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