FINfacts™ XXIV – No. 257 | March 3, 2021

MARKET RATES
Prime Rate 3.25%
1 Month LIBOR 0.11%
6 Month LIBOR 0.21%
5 Yr Swap 0.86%
10 Yr Swap 1.54%
5 Yr US Treasury 0.72%
10 Yr US Treasury 1.47%
30 Yr US Treasury 2.28%

INTRODUCTION


RECENT TRANSACTIONS
$16,500,000 Senior Construction Financing, 79% LTC for 57-Unit Multifamily Development; Toluca Lake, CA

Rate: WSJ PRIME + 0.375% (4.650% Floor Rate)
Term: 18 Months plus Two, 3-Month Extension Options
Amortization: Interest Only
LTC: 79%
Prepayment: Open Prepayment
Guaranty: Full Recourse
Lender Fee: 0.625%

Transaction Description:

George Smith Partners secured $16,500,000 of senior construction financing for the development of a 57-unit multifamily building in Toluca Lake, CA. The Sponsor purchased three contiguous lots with this development in mind. The combined land area of the lots allowed them to increase the density of the single-building Project.

The uncertainty brought on by the pandemic had lenders heavily scrutinizing projected rental rates at completion. GSP secured a capital source that understood the long-term growth that the submarket should experience post-pandemic. The strong financial position of the Sponsor, along with the lengthy track record of the general contractor, helped to push the leverage up to 79% LTC. The financing allows the Sponsor to provide the area with quality rental housing, which is sorely needed in the undersupplied submarket.

The recourse financing is priced at WSJ PRIME + 0.375% with a floor rate of 4.650%. The 18-month term is coupled with a 0.625% origination fee and is open to prepayment. There is also the ability to roll the construction loan into permanent financing at the option of the Sponsor. The rate cannot be locked until building stabilization but would be priced at 2.80% for a 5-year term at today’s rates.

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

$7,500,000 Preferred Equity Investment to 83% LTC at a 4.94% blended coupon for the Ground-Up Development of a Class-A Multifamily Project; Saint Louis, MO

Rate: 12.25%
Fee: 1% origination fee
Term: 36 months with two, 12-month extension options
Amortization: I/O
Prepayment: Open in whole or in part at any time with a two-year minimum yield
Guarantee: None

Transaction Description:

George Smith Partners successfully placed $7,500,000 in preferred equity with last dollar exposure of 83% loan-to-cost ($222,000/unit) for the ground-up construction of a 205-unit, class-A apartment project in an irreplaceable location within the Central West End submarket of Saint Louis, Missouri. The preferred equity investment priced at 12.25% was sourced during the COVID-19 pandemic through an east coast real estate investment management company. GSP worked with the Sponsor to tailor a capitalization that increased leverage to a reasonable level above the 70% loan-to-cost senior loan, reduced overall project costs through minimizing the preferred return current pay portion, mitigated sponsorship risk through negotiated performance hurdles, and was highly accretive to common equity returns. Although the preferred equity investment was made during height of COVID-19 safer-at-home orders, the investor’s concerns were mitigated through the institutional sponsor’s local experience, market, and submarket performance during the pandemic, and strong project fundamentals.

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

70% Acquisition Financing of $1,036,000 for 9-Unit, Multifamily Property; Koreatown area of Los Angeles, CA

Rate: 3.25%
Term: 30 years term, fixed for first 5 years, resets every 5 years after for the term
LTV: 70%
DCR: 1.20
Prepayment: 1.75% for first 3 years, 1% thereafter

Transaction Description:

George Smith Partners arranged $1,036,000 in permanent financing for the acquisition of a stabilized 9-unit multifamily property located in Los Angeles, CA. Simultaneously, GSP was helping the Sponsor close on a few multifamily refinances within their portfolio to pull cash out and use as equity for the Subject Property. Although the Property is currently 100% occupied, rents were below market because the Seller self-managed and the Property needs exterior and interior improvements. The Sponsor wanted to lock-in a low rate to allow for additional cashflow to be used towards building upgrades. Despite being on a strict closing deadline, GSP was able to identify a bank lender who could close within 45 days. The loan represents 70% of the purchase price and was structured with the first 5 years being fixed at 3.25%, while resetting every 5 years for the rest of the 30-year term. The loan structure also allows for flexible prepayment with the first 3 years being equal to 1.75% and 1% thereafter.

Advisors

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

SPEAKERS CORNER

The Bankruptcy Battleground West

Gary M. Tenzer will be participating as a panelist in a virtual discussion at Bankruptcy Battleground West sponsored by the American Bankruptcy Institute. This event will bring seasoned insolvency and real estate finance professionals together online to discuss the leading issues of bankruptcy law and real estate finance, with a focus on the Southern California region.
Date: Tuesday, March 9, 2021 – Wednesday, March 10, 2021
Register: https://www.abi.org/virtual/conference/bbw21/page

City of Hope Real Estate & Construction

Zack Streit will moderate a conversation with Wayne Ratkovich, founder and chairman of The Ratkovich Company, hosted by City of Hope. The Ratkovich Company is well known for leading the development of The Bloc (dramatic $250 million transformation of the former Macy’s Plaza in the heart of downtown LA), the Hercules Campus (11-building complex of former Hughes Aircraft Company Buildings that have historic status and is now fully leased to Google, YouTube and the advertising firm 72 and Sunny) and 5900 Wilshire (a 30-story office tower across from the Los Angeles County Museum of Art). They will discuss via Zoom the future of large-scale urban infill development in a Post-Covid world.
Date: Friday, March 12, 2021
Time: 10:00 am PST
Register: https://events.bizzabo.com/LAREfireside
($10 suggested donation benefiting City of Hope)


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HOT MONEY
Permanent Financing for Investment Properties with No Prepayment Penalties

GSP is working with a national portfolio lender funding permanent financing for the multifamily and medical/Class A, Class B office. With loan sizes up to $50,000,000, pricing for multifamily properties start at 3.50% and all other property types start at 3.625%. They can offer 75% of value subject to actual current debt service requirements and with terms up to 10 years fixed, amortized over 30 years. There is never any prepayment penalty.

More Hot Money ›

KIRISITS’ CORNER

CRE Provisions Included in New COVID Relief Bill

By Matt Kirisits

The new $1.9T COVID relief bill was passed by the House this past weekend and is now under debate in the Senate. The bill incorporates several beneficial provisions for the CRE industry, including $1,400 direct payments to individuals (which will hopefully support multifamily rental collections), $25B in residential rental assistance, and $25B in grants to restaurant owners. Last December’s relief bill included residential rent relief, but the support for restaurants in the current bill is new and aims support towards mall and retail operations. This will most likely be the last relief bill passed to alleviate the economic dislocation caused by the shutdowns in response to the Pandemic. In many states, eviction moratoriums have ended; California’s ban remains in place through March 31, 2021. The key issues now relate to the deferral & forbearance programs enacted over the past year and how they will unwind for tenants, landlords, and lenders.

Recent economic forecasts from the bulge bracket investment banks provide a reason for optimism. Full-year GDP growth for 2021 is projected in the 6%-7% range. While this reflects growth from a low 2020 baseline, it represents a much higher prediction than several months ago. The unemployment rate has fallen from a high of 14% in April 2020 to approximately 6.5% today. The 10-Year Treasury has risen 50 basis points year to date, signaling bullish investor sentiment as confidence in the economic recovery takes hold. 10-Year fixed-rate agency loans are pricing in the total coupon range of 3.25-3.45% compared to 2.95% seen in Q4 2020. Last week, Federal Reserve Chair Powell re-emphasized the central bank’s commitment to maximum employment and price stability; Powell has consistently stated a goal for average annual inflation equal to 2.0%. The new relief bill will undoubtedly provide vast short-term advantages to the recovery; however, a sudden increase in inflation is a long-term risk that remains present.

 

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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