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FINfacts™ – XXIV No. 248 | December 16, 2020
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| Prime Rate |
 3.25% |
| 1 Month LIBOR |
 0.15%
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| 6 Month LIBOR |
0.25% |
| 5 Yr Swap |
0.45% |
| 10 Yr Swap |
0.93% |
| 5 Yr US Treasury |
0.37%
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| 10 Yr US Treasury |
 0.93% |
| 30 Yr US Treasury |
1.65% |
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Rate: 4.90% Fixed
Term: 12 Month
Amortization: Interest Only
LTC: 70%
Guaranty: Non-Recourse
Lender Fees: 1.00%
Prepayment: Open
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Transaction Description:
George Smith Partners secured a $15,500,000 bridge loan for three newly constructed, pre-Certificate of Occupancy multifamily assets located in Los Angeles, CA. The non-recourse loan provided significant cash-out proceeds to the sponsor, refinanced outstanding construction debt and capitalized construction completion costs. The loan is sized at 70% LTC on a 4.90% fixed rate, non-recourse, 12-month term. The loan did not require an interest reserve or capitalized carrying costs.
The loan is secured by three new construction multifamily assets in the Koreatown and Eagle Rock submarkets of Los Angeles, totaling 57 units, in various stages of completion. All will be complete by Q1 2021, with lease up occurring throughout the balance of 2021. Given COVID related delays and slower-than-anticipated leasing velocity, GSP was able to identify a lender comfortable with the high quality, new construction product, and the long-term stability of these submarkets. The loan closed three weeks from term sheet execution.
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Rate: 9.75%
Term: 12 Months
Amortization: Full Term Interest Only
LTV: 85%
LTC: 65% of predevelopment expenses
Prepayment: 6-months
Guaranty: Non-Recourse
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Transaction Description:
George Smith Partners arranged $12,500,000 in non-recourse financing for the acquisition of land which the Sponsor will entitle for 333 apartment units. GSP was able to locate a lender able to provide 85% of the purchase price. Not only was the loan high-leverage, it had no holdbacks for pre-development costs, making servicing very simple for the Borrower. The Sponsor intends to complete the entitlements and refinance into a construction loan in 6-12 months.
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Rate: 3.73% Fixed
Term: 10 years
Guaranty: Non-recourse except for Bad Act or Environmental
Lender Fee: Par
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Transaction Description:
George Smith Partners successfully arranged $7,600,000 in permanent financing for a non-traditional anchored shopping center in Northern California. The Big Lots and Dollar Tree anchors had short terms remaining on their primary leases and they both had exceptional health ratios (occupancy cost/total sales). The other two non-credit anchors are doing well. During the Covid-19 pandemic, our Sponsor lost a restaurant tenant and provided rent relief for some of the other tenants. Today, all the tenants are currently paying their rents in full.
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Rate: 3.30% Fixed; Adjusts every 3rd year
Term: 20 Years
Amortization: 20 Years
LTV: 45%
Guaranty: Recourse
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Transaction Description:
George Smith Partners successfully arranged a $1,750,000 refinance for a unique 296-unit self-storage facility consisting of 46,608 square feet in Georgetown, TX. This was a permanent recourse loan at 3.30%, fixed for the first 3 years with a rate reset every 3 years thereafter. The loan is fully amortizing over 20 years. The Property consists of large cargo shipping containers that have been welded together and are not permanently affixed to the ground. The units are both climate and non-climate controlled and are currently 94% occupied. The Property is also a leading provider for U-Haul rentals in this infill area of downtown Georgetown. The Sponsor, a repeat client, acquired the Property all cash in March 2020 and engaged GSP for a permanent financing solution.
Challenges:
The uniqueness of the improvements was challenging for lenders to get comfortable with and many declined the request. The interested lenders proposed to finance the improvements from an equipment loan standpoint versus real estate. This option was unappealing to the Borrower because an equipment loan would have limited the amortization to 12-years, thus leaving no cash flow.
Solutions:
GSP leveraged its expertise and strong relationship with a Life Insurance Company lender to execute a low fixed-rate, 20-year fully amortized permanent loan. GSP was able to get the Lender comfortable given the conservative 45% loan to value request, historical occupancy, cash flow and appraised value.
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George Smith Partners is working with a national lender offering floating rate and mezzanine programs for transitional to stabilized office, retail, mixed use, industrial, multifamily and hospitality properties. The floating rate program starts at $5,000,000 with 3 to 5-year terms, up to 80% LTV/LTC depending on the asset quality/market and pricing is based on market rate spreads plus one-month LIBOR. The mezzanine program starts at $5,000,000 with 2-10-year terms and up to 85% LTC and pricing is 9% – 12%.
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Today’s Fed meeting and policy announcements showed the central bank committed to years of low rates and continued bond purchases with little fear of inflation. Markets were focused on the bond purchases and many were hoping for guidance indicating the purchase of longer term treasury bonds. The Fed’s $120 million of monthly bond purchases will continue as they “foster smooth market functioning and accommodative financial conditions, supporting the flow of credit”. A move to buying more longer term bonds (10 and 30 years) would alleviate fears that stimulus and deficit spending would lead to long term yields rising. No such announcement was made and the 10 year T is at 0.92%. The Fed balance sheet sits at $7.3 trillion and total US outstanding debt is $27.5 trillion. Note that at the end of 2007, the Fed balance sheet was at less than $1 trillion and US debt was $9 trillion. Supply/demand concerns are warranted. Meanwhile, Congressional negotiators are optimistic that they are on the verge of passing a $1.4 trillion spending bill for next year and about $900 billion in long awaited stimulus.
With vaccinations beginning this week in the US, there is cause for optimism, but it’s pretty certain that the next three months will be extremely challenging for public health and the economy. Both sides of the aisle agree: the stimulus bill is a “must pass” before this Congress adjourns. There is talk of a weekend session and possibly negotiating into next week with another one week stopgap being passed by Friday.
This is the final Finfacts of 2020, a year that has seen many challenges. I hope everyone has a safe and happy holiday season and best wishes for 2021. 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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