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FINfacts™ XXIV – No. 259 | March 17, 2021
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| Prime Rate |
 3.25% |
| 1 Month LIBOR |
 0.11% |
| 6 Month LIBOR |
0.20% |
| 5 Yr Swap |
0.94% |
| 10 Yr Swap |
1.67% |
| 5 Yr US Treasury |
 0.80%
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| 10 Yr US Treasury |
1.65% |
| 30 Yr US Treasury |
2.38% |
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Rate: 4.65%
Term: 48 months
Fee: 1.00%
Amortization: 30-months interest only; 30-year amortization during months 31-39; 27.5-year amortization thereafter
LTC: 74%
Prepayment: None; open in whole or in part at any time
Guaranty: Full repayment guarantee that burns down to a 50% repayment guarantee upon certificate of occupancy
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Transaction Description:
George Smith Partners successfully placed $27,180,000 (74% LTC) in construction financing to fund the ground-up development of a first-of-its-kind in the market, multi-property, 168-unit workforce housing project in an infill and trendy neighborhood of Saint Louis, Missouri. GSP leveraged its diverse lender relationships to source a construction loan for the unique project that is comprised of six individual buildings ranging from 18-unit (for rent) townhomes to 35-unit apartment buildings. Compounding the Project’s complexity is the requirement to cap rents, for a period of 10 years, on 51% of the units to be affordable for 80% AMI and the remaining 49% of units to be affordable for 100% AMI. Furthermore, although all six buildings are located within a one-block radius of each other, none of the sites are contiguous. The GSP-sourced loan was tailored to meet the needs of both the Sponsor and its equity partner. The equity partner capped construction leverage to 67.5% LTC, however GSP structured the loan to include a $2,500,000 earnout, which is sized to 74% LTC. GSP and the Sponsor were ultimately successful in obtaining approval from the equity partner for the higher-leverage earnout which is released upon 90% occupancy and a 1.25x DSCR on T-3 income.
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Rate: 3.30% fixed for 5 years, then floating at 1-year CMT + 2.75%
Term: 10 years
Amortization: 3 years Interest Only followed by 30-year amortization
Prepayment Penalty: 3,2,1,1,1%
LTV: 70%
DCR: 1.25x
Guaranty: Non-Recourse
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Transaction Description:
George Smith Partners secured $4,600,000 in proceeds for the cash-out refinance of a 38-unit multifamily property located near Seattle, WA. The Borrower has completed a value-add business plan over the past two years. The Lender gave full credit for the newly signed leases and higher net operating income at the Property. Only one month of stabilized operating history was required to underwrite to the in-place income. Proceeds were maximized by applying the debt coverage ratio constraint to the actual note rate, rather than using a higher underwriting rate.
The previous loan was originated during a cyclical peak in interest rates and carried a note rate of 4.70%. The new refinance loan lowered the Borrower’s interest rate by 140 basis points while simultaneously providing a return of equity. Fixed at 3.30% for five years, the first three years are interest only before rolling into a 30-year amortization schedule.
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Blended Rate: 9.14%
Term: 12-month Bridge Loan plus a one 6-month extension
Loan-to-purchase: 80%
Prepayment Penalty: None
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Transaction Description:
George Smith Partners was approached to obtain high leveraged quick purchase financing. The Sponsor had the opportunity to purchase a quadruplex well below market value because of his ability to close quickly with an 80% LTC quick-close loan. GSP arranged this non-recourse acquisition financing. The Property is currently 100% occupied. Rents are below market due to the need for exterior and interior improvements. The loan was structured with a first trust deed from a debt fund as well as a preferred equity B piece. There’s additional flexibility for the Sponsor because there is no prepayment penalty. This loan structure allows the Sponsor to implement their business plan of renovating units, increasing rents, and refinancing into a permanent loan within a few months. The non-recourse facility was priced at an interest only fixed rate with a blended rate of 9.14% with a 12-month term plus a 6-month extension. Thanks to our long-standing relationship with this debt fund and preferred equity investor, GSP was able to close this transaction in less than 5 days from signing the term sheet.
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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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George Smith Partners is working with a nationwide capital provider funding high leverage construction and bridge financing for pre-leased build-to-suit projects, medical properties, and self-storage properties up to 90%-100% LTC for $1-$25 million. In addition, they provide small balance JV equity for development and value-add properties for all asset classes. Rates are between 8% – 12% and terms vary by product type.
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Today’s Fed meeting was more of a market mover than usual, as evidenced by the stock market hitting a record high this afternoon. For our Sponsors that watch the 10-year treasury closely, Fed Chair Powell did not disappoint today! He did everything he could to convince jittery bond markets that there is no reason to panic (sell). Recent developments (Over $3 trillion in stimulus, vaccine distribution numbers higher than expected) have sent GDP growth and inflation predictions upward. Powell is always hyper aware of Bernanke’s infamous 2013 “taper tantrum” press conference that sent 10-year yields rocketing within minutes.
Today, Fed Chair Powell made several specific statements with the obvious intent of removing any ambiguity or uncertainty.
- The policies of rates at zero percent and $120 billion in monthly bond buying are in full effect, with no rate increases planned until 2023.
- As for any tapering of bond purchases, he spoke directly to the bond bears, “As we approach it, well in advance, we will give a signal”. He couldn’t have been clearer unless he executed an order to buy another $100B in treasuries right there at the press conference.
- Social message? Powell reiterated that the Fed is willing to let inflation (as defined by the PCE) to run at “above 2%” for an “extended period, to get to full employment. At the same time, he noted the racial disparity in employment and the share of displaced jobs during the pandemic. This is a departure from the “old school” Fed targets of “2 and 5” (ie. don’t raise rates until inflation is above 2% and/or unemployment is below 5%). Inflation is seen as so much less volatile than historically. He seems to be following the “K shaped” recovery theory, with upper and lower classes on different paths. The Fed is determined to let the slack in employment and wages fully recover before making any policy moves. He basically instructed the bond market not to sell off every time a “transitory” inflationary data point is released. The 10-year held at about 1.65% with no major spike in yields. The only bazooka left in Powell’s arsenal would be a repeat of “Operation Twist” whereby the Fed sells short term treasuries (3 month – 2 years) and buys large amounts of 10-year Treasuries. We shall see if that becomes necessary.
Focus on Retail and the Reopening of Society: This week’s announcements of the reopening of movie theaters and gyms in California, along with partial capacity openings of Dodger Stadium, Angel Stadium, Disneyland, etc. are further advances in the reopening of society. CMBS lenders are open for business for well-performing retail properties and even some hotels at the right basis. With the recent rally in CMBS bonds and relatively low treasuries, originators can price risk in retail with an attractive loan rate. This is significant as CMBS is the traditional permanent loan execution for retail. Their willingness to lend unlocks bridge and construction lending for the product type. Of course, everything depends on the path of the virus and fingers are crossed. By David R. Pascale, Jr. , Senior Vice President at George Smith
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Constellation Place
10250 Constellation Blvd., Ste. 2700
Los Angeles, CA 90067
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© 1999 - 2024 George Smith Partners, Inc. DRE # 00822654 FINfacts is an ePublication of George Smith Partners, Inc. For Promotional Purposes Only. All Rights Reserved.
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