FINfacts™ XXIV – No. 251 | January 20, 2021

MARKET RATES
Prime Rate 3.25%
1 Month LIBOR 0.13%
6 Month LIBOR 0.25%
5 Yr Swap 0.54%
10 Yr Swap 1.10%
5 Yr US Treasury 0.45%
10 Yr US Treasury 1.09%
30 Yr US Treasury 1.825%

RECENT TRANSACTIONS
$20,675,000 Post-Closing Acquisition Financing for an Industrial Asset; Los Angeles, CA

All Terms Confidential

Transaction Description:

George Smith Partners arranged $20,675,000 in post-closing financing collateralized by an 185K square foot infill flex/R&D industrial asset located in Los Angeles, CA. The recapitalization repatriated equity and provided future funding for the renovation of the Property.

The asset provides optionality for multiple upside scenarios such as sound stage and creative office use. The business plan is to renovate the Property and cater to growing demand from the many media, entertainment and technology tenants in the Los Angeles market.

Amidst a time of market volatility and economic uncertainty, George Smith Partners was able to identify a capital source that understood both the value of the asset and the ability of the Sponsor to execute on the intended business plan.

Advisors

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

$10,895,000 Cash-Out Refinance of a 2-Property Multifamily Portfolio at 3.15%; Los Angeles, CA

Rate: 3.15%
Term: 30 years term, fixed for first 5 years, resets every 5 years after for the term.
LTV: 70%
DCR: 1.20

Transaction Description:
George Smith Partners was retained to refinance a 2-Property multifamily portfolio. Sensing buying opportunities in the multifamily market, the Sponsor wanted to pull cash out of their existing multifamily portfolio to use as equity to purchase new properties. GSP obtained a fixed rate of 3.15% for the first 5 years of the 30-year term.

Challenge:
With the global pandemic and uncertainty in the market, it was critical to select a capital provider who could successfully close and provide the cash out for the additional purchases. Any delays would have been very costly because of penalties in the purchase contract. In addition, most lenders were overwhelmed with year-end financing requests as several other lenders pulled out of the market and forbearance requests from their current borrowers. There were complex issues around appraisals and inspections that required GSP’s daily oversight.

Solution:
Because of GSP’s strong relationship with this capital provider, we were confident that the loan officer would stay focused, close on time and keep the agreed rate and proceeds. GSP is in the debt market every day which gave us the ability to ensure that the selected Capital Provider was closing deals and meeting deadlines. GSP’s experience working with appraisers, inspectors and title/escrow during the COVID period was critical to getting this transaction completed in a timely manner. The loan closed on time and the Sponsor was able to utilize the cash-out to purchase another project. As is common during the COVID crisis, the Capital Provider wanted a 12-month payment reserve. GSP was able to convince the Capital Provider to only require 6-months and allow the reserve to be applied to the first 6-months of payments.

Advisors

Bryan Shaffer
Principal/Managing Director
Ruben Bohbot
Vice President
Michael Smilove
Assistant Vice President

Construction Debt – 79% LTC – 81 Multifamily Units, Los Angeles, CA

Rate: 5.00%
Term: 18-Months; Two 6-Month Extensions
Amortization: Interest Only
Max LTC: 79%
Max “As-Complete” LTV: 60%
Min Stabilized DSCR: 1.15x
Loan Fee: 0.75%; 0.25% per each extension
Guaranty: Recourse

Transaction Description:

George Smith Partners secured senior construction financing for a new multifamily development in the Lincoln Heights neighborhood of Los Angeles, CA. The $10.5M loan will be utilized to complete the 81-unit project. The loan represents approximately 79% of the project cost and was structured with an 18-Month initial term and interest only payments for the duration. The Project will be comprised entirely of studio units configured at 540 square feet; each unit will include one bathroom, a full kitchen, modern appliances, and a washer and dryer. Amenities for the project include a roof top deck, barbeque area, gym & recreational room, bicycle storage, secured parking, and access to a swimming pool.

GSP secured a Lender that understood the future path of development and was comfortable with the emerging market; the current neighborhood is primarily industrial with limited residential product in proximity. The Lender accepted the Sponsor’s imputed equity from entitling the site; this increased leverage to 79% of cost while keeping pricing at a level accretive to the overall yield. The loan was structured with a shorter initial term to minimize upfront points and interest reserves. GSP worked with the Lender to resolve several budget issues that arose during diligence due to the rising price of lumber and concrete; proceeds were successfully increased by $250,000 to ensure the Project would be fully capitalized without additional equity.

Advisors

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

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HOT MONEY
Debt, Mezzanine and Preferred Equity Financing

George Smith Partners identified a capital provider offering debt, mezzanine and preferred equity for all product types in the top 25 markets. Debt financing starts at $30,000,000 and Mezzanine and Preferred Equity capital starts at $10,000,000. Rates start at 475+ bps yield/coupon for stretch senior loans, Mezzanine pricing starts at 1000 + bps yield and Preferred Equity starts at 950 + bps. Terms are for a minimum of 1-year and generally do not exceed 5-years.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Focus on Washington

Incoming Treasury Secretary Janet Yellen’s confirmation hearings this week were illuminating. She urged Congress to pass another large stimulus package. She also endorsed a market-determined dollar value . This means the US will not weaken the dollar to create competitive trade advantage for US businesses. The continuing stimulus/deficit spending combined with ultra-accommodative Fed policies is expected to lower the dollar’s value against other currencies. This way the US can “naturally” allow the dollar to devalue while maintaining a position that allows us to point the finger at other nations that are engaging in overt currency weakening. With the Fed continuing to buy $120 billion in bonds per month and expanding its balance sheet up to $10 trillion, the flood of dollars is definitely contributing to asset inflation across the board (stocks, bonds, real estate, etc). Meanwhile consumer inflation remains low, allowing for loose fiscal and monetary policy. The threat to this policy is runaway inflation, which could force rates higher, threatening asset valuations. However, commercial real estate could then return to it’s status as an inflation hedge. 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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