FINfacts™ XXIV – No. 262 | April 7, 2021

MARKET RATES
Prime Rate 3.25%
1 Month LIBOR 0.11%
6 Month LIBOR 0.20%
5 Yr Swap 0.98%
10 Yr Swap 1.68%
5 Yr US Treasury 0.87%
10 Yr US Treasury 1.65%
30 Yr US Treasury 2.35%

INTRODUCTION

Please join us for our Virtual Symposium this Friday at 10:00am PT | 1:00pm ET.

REGISTER TODAYhttps://www.gspartners.com/event/

Michael Lewis is an American author and financial journalist known for his non-fiction work, particularly his coverage of financial crises and behavioral finance. His best-selling books include: Liar’s Poker, The Blind Side, The Fifth Risk, Moneyball, The Big Short and many more. Denise Pellegrini, Bloomberg Radio Host and Real Estate Reporter will have a one-hour conversation with Michael Lewis about Wall Street and the complexities and issues with the financial markets.


RECENT TRANSACTIONS
$31,633,000, Full-Term Interest-Only, Permanent Financing for Non-Credit Tenanted Office; Suburban Salt Lake City, UT

Rate: 3.54%
Term: 10 Years
Amortization: Full Term Interest Only
Prepayment: Defeasance until last 6 Months which are open with no penalty.
Guaranty: Non-recourse except for “bad acts” and environmental

Transaction Description:

George Smith Partners successfully placed $31,633,000 in permanent financing for an office building in the Salt Lake City area amidst election uncertainty and COVID-19. In particular, pandemic restrictions and the proliferation of “work from home” concerned many lenders that office may face a very slow recovery. Although the Building’s sole tenant was non-credit, their long lease term and exceptionally strong financials motivated the Lender to provide a competitive quote. Well-located in a fast-growing market, GSP structured loan terms that were highly conducive to the Sponsor’s long-term plan and guided the transaction to an expedient closing.

Advisors

Gary E. Mozer
Principal/Co-Founder
Portrait Robert Horton
Portrait Dorian Aftalion
Vice President
Tommy Adelson
Vice President
Portrait Phillip Mozer
Analyst

$7,750,000 Non-Recourse Bridge-to-Agency Refinance for a 36-Unit Recently Completed Multifamily Building; Tujunga, CA

Rate: LIBOR + 3.75%
Term: 18 Months
Amortization: Full Term Interest Only
LTV: 75%
LTC: 78%
Prepayment: 9 Months
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners arranged $7,750,000 in non-recourse financing for the lease-up and stabilization of a newly constructed 36-unit multifamily building located in Tujunga, CA. The Sponsor had just received the Property’s Certificate of Occupancy and wanted to lower the interest rate from the existing construction lender. This financing allows the Sponsor to finish the lease up of the Property, stabilize the asset, and exit the loan with long-term agency financing. The financing was $700,000 more than the construction loan and the extra proceeds were used to pay for cost overruns and build a larger interest reserve required for the slower lease up due to COVID. The Lender will cut their minimum required hold and exit fee after month seven if the Sponsor exits into an Agency loan with the Bridge Lender.

Advisors

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

Perm Debt – 1.20x DSCR & 3-Years Interest Only – Stabilized Multifamily, Los Angeles, CA

Rate: 3.40%
Term: 5 years
Max LTV: 65%
Min DCR: 1.20x
Amortization: 3-Years Interest Only, 30-Year Schedule thereafter.
Origination Fee: Par
Prepayment: 3, 1, 1, 1
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners secured senior permanent financing for a stabilized multifamily property located in the Pico Robertson neighborhood of Los Angeles, CA. The non-recourse debt was utilized to complete the acquisition of the multifamily asset. The loan was structured with a 5-year term and interest only payments for the initial 3-years followed by a 30-year amortization schedule. The loan was collateralized by a Class B, three story, 16-Unit multifamily property. The Subject was 100% leased at closing but only 78% physically occupied.

GSP selected a bank lender that was able to underwrite the income from three newly executed leases with no seasoning. The Lender funded the full proceeds with signed leases and rent checks although the tenants had yet to take possession. The Lender executed on excellent terms while closing on a firm acquisition deadline of 45 days. At application, the Lender offered an early rate lock to remove any pricing risk. GSP worked with the Lender to navigate the appraisal assumptions surrounding concessions and market rent stemming from various COVID risks while maximizing proceeds.

Advisors

Shahin Yazdi
Principal/Managing Director
Jonathan Lee
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
5.0% Fixed Rate Prepayable at Any Time – 70% LTV – Construction Loan Takeout

George Smith Partners is working with a non-recourse capital provider that is funding fixed & floating bridge loans starting at $10,000,000. With a focus in the top 150 MSA’s, the lender will fund up to 70% of value at a fixed rate of 5.0%, or up to 80% with floating rates at 6%+. Terms are 1-3 years. Program highlights include flexible prepayment and a short minimum interest period. The lender can provide capital for newly constructed multifamily properties that are still vacant.

More Hot Money ›

Kirisits’ Corner

By Matt Kirisits

Economic Recovery Accelerates

Q1 is in the books, and from a macroeconomic perspective, it turned out far better than imagined three months ago. Economic indicators such as GDP and job growth continue to surprise to the upside. Major investment banks expect GDP growth above 7% in 2021, and the Federal Reserve recently joined them by revising its forecast upward to 6.5%. Hiring has been brisk as payrolls increased by 916,000 in March. Many of the jobs were in leisure and hospitality, the two industries hit hardest by the pandemic. Construction employment, which has remained steady, saw additional gains indicating a large swath of new projects breaking ground.

Regarding inflation, the Fed Board of Governors’ median forecast at the March meeting was 2.4%; the board indicated it is willing to allow inflation to run above 3% for a while to meet its goal of a 2.0% average. The Fed also signaled that prices are not rising enough to raise the benchmark fed funds rate. Although unease about inflation is replete in financial media, it is notable that during the strongest economic periods in US history (the early 1950s and the mid-1990s), inflation was often close to 3.0%. Concerns about high single digit inflation (of the type experienced during the 1970s) are greatly exaggerated; for demographic reasons, hyperinflation is extremely unlikely in the present-day United States.

In several previous notes, we have contrasted the pandemic-induced recession of 2020 with the great financial crisis of 2008-2010. As more data comes in, it is clear that the main differences this time around were 1) liquidity in the capital markets and 2) swift government action. Per Real Capital Analytics, during the last recession, “cash-flowing assets could not be refinanced, and owners were forced to sell at ruinous prices.” In contrast, capital markets shut down only briefly in Q2 of 2020 and then quickly reopened. The primary catalyst was Fed support to provide liquidity and backstop lenders. We observed this at GSP by closing several “construction-to-bridge” loans for properties that finished construction in Q1 2020 but were behind on their lease-up proforma. With the availability of bridge capital, we were able to provide the Sponsors an extra 1-2 years of lease up time at relatively low interest rates. Many of these deals are now maturing and refinancing into perm loans at rates in the low 3s. As a result, there continues to be very little distressed selling.

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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