FINfacts™ XXIV – No. 250 | January 13, 2021

MARKET RATES
Prime Rate 3.25%
1 Month LIBOR 0.13%
6 Month LIBOR 0.25%
5 Yr Swap 0.57%
10 Yr Swap 1.11%
5 Yr US Treasury 0.47%
10 Yr US Treasury 1.09%
30 Yr US Treasury 1.82%

RECENT TRANSACTIONS
$19,700,000 Non-Recourse Permanent Financing for Power Center, 10 Years Fixed Rate at 3.03%, 69%LTV; Tertiary Midwest Market

Rate: 3.03% Fixed
Term: 10 Years
Amortization: 2 Years Interest Only, 30 Year
LTV: 69%
Prepayment: Yield Maintenance
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners successfully placed $19,700,000 in non-recourse permanent debt for the refinance of a 185,000 SF power center in a tertiary Midwest market. The Property is fully leased with all tenants in occupancy and is comprised of strong national credit tenants with long term leases. It serves as the main retail center for its town. The proximity to a secondary metropolitan market 10 miles away promotes crossover shopping at the center.

At the beginning of COVID-19, the state government closed all non-essential businesses for 3 months. Throughout the COVID-19 pandemic, none of the tenants requested rent abatement and limited rent deferral was required. The strength of the Sponsor as a national owner and operator of retail centers, the lack of negative impact due to COVID and the fact that the center was the most dominant in the City all contributed to the center’s attractiveness to lenders. The timing occurred in the face of a large contraction of lending on retail. GSP guided the financing from application to closing in only 30 days and secured a 10-basis point reduction in the coupon on the day of rate lock.

Advisors

Gary E. Mozer
Principal/Co-Founder
Portrait Robert Horton
Portrait Dorian Aftalion
Vice President
Portrait Phillip Mozer
Analyst

$13,777,000 Portfolio Refinance for 5 Multifamily Properties, Non-Recourse, Cash-Out, Interest Only, No Payment Reserves; Los Angeles, CA

Rate: 3.35% Fixed
Term: 5 Years
Amortization: 5 Years Interest Only
LTV: 65%
DSCR: 1.25x
Prepayment: 3,2,1
Loan Fee: Par
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners placed 5 non-crossed loans totaling $13,770,000 to complete the refinance of a 67-unit multifamily portfolio in Los Angeles. The financing represents a significant return of equity to the Sponsorship while simultaneously lowering their previous interest rate. The loans all carry a fixed interest rate of 3.35%, a 5-Year term, and include interest only payments ranging between three and five years. In contrast to many lenders that are currently structuring six to twelve months of P&I reserves, GSP successfully negotiated waiving any shortfall structure.

Given the current market challenges (stemming primarily from COVID) even multifamily properties are experiencing additional scrutiny from both underwriters and appraisers. Despite these new hurdles, GSP was successful in maintaining the loan proceeds originally represented in the application. Through a combination of presenting real-time comparable market data to the appraiser and working with the Lender to increase the initial LTV stipulation, GSP overcame the valuation issues that arose as a result of the final appraisal. After presenting market data on a number of similar stabilized asset transactions we demonstrated that LA multifamily properties with consistent occupancy and collections have exhibited minimal value declines, ultimately convincing the Lender to increase the LTV constraint from 60% up to 65% and preserving the full cash-out proceed amounts.

Advisors

Shahin Yazdi
Principal/Managing Director
Jonathan Lee
Principal/Managing Director
Jarod King
Senior Vice President
Matthew Kirisits
Vice President
Paul Monsen
Vice President
Kyle Redmond
Assistant Vice President

$8,750,000 Bridge Refinance with Cash-Out for 35-Unit Multifamily Property; San Jose, CA

Blended Rate: 7.41% Fixed
Lender Fee: 1%
Term: 12 Months, Interest Only
LTV: 70%
Prepayment: None
Guaranty: None on First Mortgage; 50% on Second Mortgage

Transaction Description:

George Smith Partners secured $8,750,000 in total financing comprised of a 60% LTV first mortgage and a 10% LTV second mortgage for a 35-unit multifamily property in San Jose, CA. The loans provided significant cash-out proceeds at a blended rate of 7.41%. Both loans have a 12-month term, interest-only payments and are open to prepayment without penalty. Recourse is limited to 50% of the second mortgage only. The Property has maintained full occupancy and rent collections despite the COVID-related impacts in the overall market. The Lender did not require reserves for potential COVID rental interruption. The Sponsor developed the Property in the 1980s and engaged GSP to provide a high leverage, quick-close financing solution. The financings closed within 8-days of the Lender’s issuance of term sheets.

Advisors

Gary M. Tenzer
Principal/Co-Founder
Antonio Hachem
Principal
John Choi
Vice President
Wendy Wang
Vice President
Cornelius Baliukonis
Analyst

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HOT MONEY
Non-Recourse Floating Debt From 2.50%

George Smith Partners identified a national capital provider providing floating rate debt starting at $50,000,000 on Class A & B assets in core locations for best in class sponsors. Non-Recourse pricing starts at 2.50%. Terms range from 10 to 20 years with the ability to advance 60-65% of value. Prepayment penalty varies based on the initial loan term.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
2021 Outlook….Near Term Challenges, Long Term Optimism and Hope

2020 was a year like no other and 2021 is starting out with turmoil and change. Let’s look at some trends to watch in 2021.

Covid and the return to “normal”: The U.S. is experiencing record spikes in cases, hospitalizations and deaths while the pace of vaccination has been slower than expected. In the U.S., over 10 million people have received at least one dose, about 3.3% of the population.

Optimism: New policies, wider distribution (mass vaccination centers, availability at pharmacies, etc.), and the expected approval of more vaccines should increase the pace. Estimates of normalcy range from Memorial Day to Labor Day.

Fiscal Policy/Inflation Outlook: Look for further stimulus as the recovery has been bumpy and uneven. The Fed estimates that the unemployment rate amongst the lowest paid workers is over 20%. The results of the Georgia runoff elections resulted in Democratic control of the Senate. Combined with recent economic data indicating that job growth stalled in December, this greatly increases the likelihood and expected volume of further stimulus from Washington. More stimulus = more dollars, more treasuries, and economic growth. Also, oil prices are over $50 a barrel, the highest since last February as major producers are limiting output. As normalcy returns, pent up demand for travel and other economic activities are expected to push prices up further. Could we see the return of “classic” inflation for the first time in over a decade? Will the Fed allow the economy to “run hot” in excess of its 2.00% target without raising rates? Will investors once again view commercial real estate as an “inflation hedge”, again?

Interest Rates: Due to ultra accommodative Fed policy, 2020 saw borrowers taking advantage of all time low fixed rate financings from Fannie/Freddie, CMBS, Life Companies and Banks. Rates in the 3.00% range for full leverage loans (with some IO) were available for the right properties (typically apartments, industrial, self-storage and selected office). 2021 is starting out with a jump in Treasury yields as the 10 year spiked from 0.84% to 1.15% in three weeks, before settling at 1.09%. The anticipated recovery should result in a steeper yield curve. Already, hedge funds are engaged in the “steepening trade” – buying short term treasuries and selling long term. Residential mortgage applications jumped 20% last week as borrowers rush to lock in low rates. Will commercial real estate borrowers and buyers join them? Will the Fed step in with “yield curve control” and buy longer term treasuries to keep those rates in check? Or, will the Fed turn hawkish, “declare victory” and ease up on bond purchases, allowing rates to rise?

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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