FINfacts™ XXIV – No. 254 | February 10, 2021

MARKET RATES
Prime Rate 3.25%
1 Month LIBOR 0.12%
6 Month LIBOR 0.21%
5 Yr Swap 0.59%
10 Yr Swap 1.22%
5 Yr US Treasury 0.46%
10 Yr US Treasury 1.14%
30 Yr US Treasury 1.91%

RECENT TRANSACTIONS
$26,141,000 Permanent Debt – 12-Years Interest Only – Stabilized Multifamily; Los Angeles, CA

Rate: 3.00%
Term: 12 Years
Amortization: 12 Years Interest Only
Min DSCR: 1.35x
Max LTV: 65%
Loan Fee: Par
Personal Guaranty: None
Prepayment: Yield Maintenance

Transaction Description:

George Smith Partners secured senior permanent financing for two stabilized multifamily properties in Los Angeles, CA. The two non-crossed loans totaling approximately $26,100,000 were utilized to refinance existing debt and return equity to the Sponsor. Each loan was collateralized by a stabilized multifamily property. The first asset was a 28-unit building that was 100% leased at closing and located in Culver City, CA while the second asset was a 46-unit building that was 97% leased at closing and located in Hollywood, CA. The loans were both structured with a twelve-year term and interest-only payments for the full duration.

GSP secured a lender that was able to refinance the Sponsor’s existing debt, cover prepayment penalties and return equity while simultaneously lowering the Sponsor’s debt service payments for the next twelve years. GSP worked with the Lender to minimize debt service reserves while addressing lender concerns for potential COVID related shortfalls. Cash-out proceeds were secured on both loans despite two COVID related delinquencies. Lastly, the Sponsor was completing a complicated partnership dissolution. GSP insured the Lender accommodated the Sponsor’s timeline with an accelerated no-cost rate-lock and an extended closing period.

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

$16,500,000 Non-Recourse, Pre-Development Bridge Financing for Five-Property Co-Living Land Portfolio; Los Angeles, CA

Rate: 6.90%
Term: 12 months with one 12-month extension
Amortization: Interest Only
LTC: 50%
Guaranty: Non-Recourse
Lender Fees: 1.00%
Prepayment: Open

Transaction Description:

George Smith Partners secured $16,500,000 in bridge financing for a five-parcel land portfolio located in Los Angeles, CA. The five individual parcels are entitled (one in process of entitlements) for co-living developments totaling 211 units and 879 beds. The non-recourse loan refinanced existing debt, while providing for permitting and carry costs prior to development, with four assets slated to break ground in early 2021, and the fifth in late 2022. The loan is sized at approximately 50% LTC on a 6.90% fixed rate, non-recourse, with a 12-month term. The loan did not require an interest reserve.

Given COVID related permitting delays and perceived impacts to the co-living product type brought by the pandemic, GSP was able to identify a lender that understood the stability of the submarkets for future development and the resilience and growth of co-living over the next several years. The infill development sites, and high-density entitlements provide strong value to the collateral base for this financing. The loan closed within five weeks of term sheet execution (including the holiday and New Year’s break).

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

$2,320,000 Preferred Equity Investment to 90% LTC for a 240-Unit Workforce Housing Project; Tertiary Wisconsin Market with Strong Fundamentals

Rate: 15.00%
Term: 36 months
Amortization: I/O
Prepayment: Open in whole or in part at any time with a three-year minimum yield
Guaranty: None
Fee: 2% origination fee

Transaction Description:

George Smith Partners successfully placed $2,320,000 in preferred equity with a last dollar exposure of 90% loan to cost. The preferred equity investment was made midway through construction of the 240-unit workforce housing project and is subordinate to a senior construction loan and institutional preferred equity investor. After sourcing the senior construction lender, the Sponsor engaged GSP to leverage its diverse lender/investor relationships to source an equity investment to offset the Sponsor’s common equity requirement. GSP was successful in sourcing the equity and structured the investment as preferred equity to maximize common equity returns. Not only was the development project already mid-construction, but it was also made during the peak of the COVID-19 pandemic. GSP sourced the equity by focusing on sponsorship quality and how the Project was tailored to take advantage of the local market’s strong fundamentals, such as an insatiable demand for workforce housing driven by numerous manufacturers being located in the area including Kohler, Sargento, and Johnsonville, among others.

Advisors

Kyle Howerton
Senior Vice President
Portrait Michael Anderson-Mitterling
Senior Vice President
David Stepanchak
Senior Vice President
Olga Brandeis
Senior Vice President
Portrait Saman Yazdi
Analyst
Portrait Robert Gallagher
Analyst

Pascale's Portrait
PASCALE'S PERSPECTIVE
Data Points Towards More Stimulus, Credit Spreads Tighten

As Congress closes in on another large stimulus package, the economic data gives policy makers incentive and “inflation cover”. Last week’s jobless claims and unemployment reports indicate stalling job creation and persistent unemployment, justifying the need for further stimulus. A debate has arisen as some influential economists are warning against too much stimulus that may lead to inflation later in the year. This leads to concerns that the Fed may put the brakes on the nascent recovery by raising rates. Today’s CPI data indicated a 1.4% annual increase. Much of the inflation was due to rising oil prices (as the OPEC producers remain united in their resolve to keep production low, for now). However, inflation may firm up in the middle of the year as continued vaccinations, stimulus and pent up demand spur consumer spending. Also, the annual CPI averages will shed last year’s deflationary months (March, April, May).

CMBS Update: Huge demand for CMBS bonds (and corporates) are spurring a rally in fixed rate spreads. AAA 10 year bonds are trading at about Swap + 60 after hitting a high of Swap + 200 last year. Distressed loan volume seems to have peaked and is improving, even for hotels and retail. Originators are quoting tight spreads in the sub 200 range for lower leverage and/or larger well underwritten loans. 10 years of Interest Only is common at lower leverage for the right transactions. This rally and the tightening in corporate bonds is causing Life Companies to also tighten up. We are seeing rates from some life companies in the 2.50% range (but lower leverage than CMBS and limited or no interest only). Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith

More Perspectives ›

Rainmakers In Debt & Equity

GlobeSt.com announced their annual listing of debt and equity rainmakers. We are thrilled that George Smith Partners was recognized. 

With more than 25 years in business, George Smith Partners has established a reputation as an ethical and innovative capital brokerage firm. Since its founding, the firm has closed more than $58 billion in financing deals, serving both developers and investors to structure acquisition, construction, bridge and permanent loans. The firm also secures mezzanine loans, highly leveraged participating loans and joint venture equity on behalf of its clients. Last year, the company closed its largest transaction to date, a $460 million loan, and even through 2020, the firm has maintained strong transaction volumes, despite the recent market disruption. As a leader in the industry, George Smith Partners does more than just close deals. It publishes a weekly CRE resource called FinFacts, which is read by more than 50,000 people. The firm is also deeply invested in mentoring young talent, operating a rotating analyst program to develop future leaders. Often, these analysts become full-time employees with the firm.

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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