FINfacts™ XXIV – No. 255 | February 17, 2021

MARKET RATES
Prime Rate 3.25%
1 Month LIBOR 0.11%
6 Month LIBOR 0.20%
5 Yr Swap 0.69%
10 Yr Swap 1.36%
5 Yr US Treasury 0.55%
10 Yr US Treasury 1.30%
30 Yr US Treasury 2.06%

RECENT TRANSACTIONS
$60,200,000 Ground-Up Construction Financing, 85% LTC, 6.65% Blended Coupon on a 307-Unit, Class-A Apartment Community; St. Louis City, MO

Rate: 6.65% (blended coupon)
Term: Three-year initial term plus two, 12-month extension options
Amortization: Interest only
LTC: 85%
Prepayment: 2%, 1%, open
Guaranty: 25% repayment guarantee on senior loan only; does not apply to the non-recourse preferred equity investment
Lender Fee: 0.82% blended

Transaction Description:

George Smith Partners successfully placed $60,200,000 in high-leverage construction financing, which funded 85% of total project cost for the construction of a 307-unit mixed-use multifamily and retail project located in the trendy St. Louis City neighborhood of The Grove. GSP leveraged its lender relationships, capitalization structuring acumen, local market expertise, and strong project fundamentals to arrange the most accretive financing structure available in the market during the peak of the COVID-19 pandemic. The capitalization included a senior loan to 60% loan-to-cost and a preferred equity investment with last-dollar exposure to 85% of total project cost. The preferred equity investment is non-recourse and the senior loan required only a top-end 25% repayment guarantee. Additionally, the Lender and preferred equity investor gave credit for a lift in land value above the Borrower’s actual cost due to the Borrower having created substantial value through entitlements and development incentives.

Advisors

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

2.97% Fixed Rate for 75% LTV Refinance of Apartment Complex; Oregon City, OR

Rate: 2.97% Fixed
Term: 10 Years
Amortization: 30 Years
Interest Only: 5 Years
LTV: 75%
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners successfully obtained $6,487,000 of permanent debt for the refinance of a 43-unit apartment complex in Oregon City, OR. The unique property has a very low density for the area, appealing to residents who are looking for a less condensed living environment. The financing was secured after the Sponsor’s acquisition and renovation plan was implemented. The senior loan was able to provide the Sponsor with cash out above the original basis to return to investors. The 10-year loan is fixed at 2.97%. The financing, which is sized to 75% of appraised value, is non-recourse and carries 5 years of interest only.

Advisors

Steve Bram
Principal/Co-Founder
David R. Pascale, Jr.
Senior Vice President
Allison Higgins
Senior Vice President
Patrick O’Donnell
Vice President
Nick Rogers
Vice President

$3,825,000 Cash-Out Permanent Financing for 30-Unit, Multifamily Property; Los Angeles, CA

Rate: 3.15% (Fixed for 5 Years)
Term: 30 Years
LTV: 70%
DCR: 1.20

Transaction Description:

George Smith Partners arranged $3,825,000 in cash-out permanent financing (70% LTV) for the refinance of a 30-unit multifamily property located in Los Angeles, CA. The Sponsor used GSP with intentions of taking out their existing expensive lender. The Sponsor recently completed exterior and interior renovations including common area upgrades. The recent improvements allowed the Sponsor to increase rents thus increasing the value of the Property. GSP was able to provide the Sponsor with a 30-year term with the first 5 years being fixed at a very low rate. The rate will then reset every 5 years for the remainder of the term. Rather than most loans having a balloon payment in 5,7 or 10 years, this loan structure allows for flexibility because the loan matures in 30 years. The flexible prepayment structure is equal to 1.75% for the first 3 years, 1% for years 4 and 5, and 0% thereafter. The loan structure allows the Sponsor to refinance out of an expensive loan with a fixed rate of 3.15%, while also receiving cash out. The Sponsor is using cash-out proceeds to continue their business plan of purchasing and renovating additional properties.

Advisors

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

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HOT MONEY
3.5% Non-Recourse Bridge Financing at 75% of Cost

George Smith Partners is working with a national capital provider funding non-recourse bridge debt to 75% of total cost and 80% on apartments. The Lender has a strong appetite for multifamily, industrial, office, retail, self-storage and student housing. This capital provider offers floating rate pricing starting at L+325 with terms up to four years for transactions at $20,000,000 and up.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Rates Moving Up, Is Anticipated Inflation to Blame?

The bond market is experiencing its “worst” January/February performance in years. The 10 year Treasury yield started 2021 at 0.91% and hit 1.30% this week and is now at 1.28%. The next critical level would be at about 1.50-1.60%. That was the last “normal” level before the March pandemic market disruption. Of course we are not “back to normal” yet. But lower levels of new Covid cases and hospitalizations combined with vaccine distribution is cause for optimism (nearly 20% of the US adult population has received at least one dose). Bond markets are historically “forward looking” as buyers are anticipating economic conditions down the road. The recovery is expected to unleash pent up demand for goods and services. Goldman Sachs increased their US GDP forecasts for 2021 and 2022 to 6.8% and 4.5% respectively, an increase of 0.2%. This week saw spikes in oil (hitting $60 per barrel, a pandemic high) and industrial metals led by copper and tin (now at multiyear highs).

The case against inflation: slack in the labor market stubbornly holding down wage inflation. Increasing wages is a major focus and goal of the Fed. Today’s minutes from the January Fed meeting indicate the Fed sees the economy as “far from” their goals. The minutes specifically target a “broad” labor market recovery and inflation of at least 2%. Neither of these goals will be accomplished in the near future. Until then, the zero percent interest rates and $120 billion of bond buying will continue. Goldman Sachs predicts the next rate hike by the Fed in the second half of 2024 and the Fed will start tapering asset purchases in early 2022.

Focus on Self Storage: The CMBS rally continues with originators still quoting in the 2.80-3.25% range even with the uptick in Treasuries. The composition of recent pools shows a strong appetite for loans on self storage facilities, a strong performer during Covid. This appetite has spread throughout capital markets as bridge and construction lenders join in funding well located self storage facilities at tighter spreads. It’s a sponsor driven market as the specialty nature of the product type makes operator expertise critical. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith

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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