FINfacts™ XXIV – No. 265 | April 28, 2021

MARKET RATES
Prime Rate 3.25%
1 Month LIBOR 0.11%
6 Month LIBOR 0.21%
5 Yr Swap 0.98%
10 Yr Swap 1.64%
5 Yr US Treasury 0.86%
10 Yr US Treasury 1.61%
30 Yr US Treasury 2.29%

RECENT TRANSACTIONS
$58,000,000 Life Co. & Preferred Equity Non-Recourse Construction Financing; Culver City Adjacent, CA

Rate: L + 390 (senior)
Term: 5 Years
Amortization: Interest Only
Prepayment: None upon Certificate of Occupancy
Guaranty: Non-Recourse; Completion Guarantee with Standard Carveouts to an Entity

Transaction Description:

George Smith Partners successfully closed $58,000,000 in non-recourse construction financing for a seven-story, mixed use development across from Sony Pictures Studios and adjacent to Culver City, CA. The Project features 139 apartment units over 1,969 SF of ground floor retail. The Sponsor received a density bonus thanks to TOC incentives, in exchange for allocating 14 affordable units.

While this is the second U.S. project – the first was also financed by GSP – for a successful international developer, the pool of capital providers was significantly reduced due to the borrowing entity being headquartered in a foreign country. Presenting this deal during the height of the COVID-19 pandemic also presented significant challenges. GSP leveraged its structured financing expertise, lender relationships, strength of the Project and the Culver City market to negotiate the most desirable terms for the Sponsor.

The financings are comprised of $42,000,000 in senior construction debt from a Life Co. lender and $16,000,000 in preferred equity and includes a substantial amount in recap funds to the Sponsor at closing. The term is five years, with interest only payments and no prepayment penalty upon Certificate of Occupancy. The senior note is LIBOR + 390 and the preferred equity investment’s interest will be fully accrued during the entire term, thereby reducing the amount of interest reserve and the Sponsor’s initial cash equity contribution.

Advisors

Antonio Hachem
Principal
John Choi
Vice President
Wendy Wang
Vice President
Cornelius Baliukonis
Analyst

$19,550,000 Non-Recourse Cold Storage Construction Loan to 81% of Cost; Secondary Market

Rate: 9.25%
LTC: 81%
Origination Fee: 0.50%
Term: 18 Months Initial Term, One 6-Month Extension
Amortization: Interest Only
Prepayment: Subject to Minimum Interest Estimated at 12 Months
Guaranty: Non-Recourse with Completion Guaranty

Transaction Description:

George Smith Partners arranged $19,550,000 of senior construction financing for a ground-up cold storage facility located in Jurupa Valley, CA. The 125,000 square foot facility will serve as the headquarters for West Coast Cold Storage, a “for rent” cold storage provider focused on providing both refrigerated and frozen space to their Southern California customers. Existing cold storage facilities nationwide have an average age of over 40 years, demonstrating the need for new development within the space. With the sudden increase in online grocery orders and delivery, demand for well-located cold storage space has spiked. This flagship building will feature increased energy efficiencies and provide a variety of racking configurations to accommodate customer needs.

Located two blocks from State Highway 60, the Subject Property offers clients immediate access to the entire Inland Empire and Northern San Diego County. This location is also part of the Port of Los Angeles transportation line that handles 20% of incoming U.S. cargo and feeds all Southern California.

Structured to minimize the Sponsor’s equity investment, the non-recourse loan is sized to 81% of development costs and carries an 18-month term. Minimum interest requirements were negotiated to less than 5.5% of the committed loan amount as cold storage has a much shorter construction timeline when compared to other product types. Origination fees were allocated to post Certificate of Occupancy financing to further reduce the cash equity needed to close.

Advisors

Patrick O’Donnell
Vice President

$4,250,000 Bridge Loan for “Elmwood Row” Apartments; Los Angeles, CA

Rate: 7.97%% Fixed
Term: 1 Years
Amortization: Interest Only
Extensions: One 6-Month Option
Loan Fee: 1%
Recourse: Non-recourse
Prepayment: Open

Transaction Description:

George Smith Partners secured a $4,250,000 bridge loan for a new 13-unit multifamily community located in the Larchmont Village area of Los Angeles, CA. The non-recourse loan will be utilized to refinance the Project’s construction debt and complete the Property to get to Certificate of Occupancy. The loan represents 65% loan to stabilized value and is structured with a 1-year initial term with interest only payments. The loan allows for open prepayment and carries one 6-month extension option.

The loan is secured by a recently constructed mixed-use development comprised of 13 studio, one and two-bedroom units. The Project offers several unique features including several 2-story loft/townhome style apartments, an expansive roof top lounge with views, partial subterranean parking garage with a semi-automated parking system and EV charging stations.

GSP was able to secure a lender that underwrote to the stabilized NOI, closed with no debt service reserve, no recourse, and no prepayment fee. The selected lender could move quickly, did not require an appraisal, and funded within three weeks after issuing an application.

Advisors

Alina Mardesich
Senior Vice President

SPEAKERS CORNER

If you missed the April 23rd webinar, “2021: Bear Down or Buckle Up?” the slides and a replay of the presentation by Chris Thornberg are available here: https://www.gspartners.com/webinar/2021-bear-down-or-buckle-up/

Please join us for our next webinar on Friday, May 14th featuring Bryan Shaffer and David Pascale.

Register here: https://zoom.us/webinar/register/WN_hlzl95zSTP6ddfhg22YFQQ

 


Pascale's Portrait
PASCALE'S PERSPECTIVE
Rates Stay Put as Powell Doesn’t “Blink” As Economic Growth Surges

With stimulus, vaccinations, and reopening’s spurring rapid and robust economic growth, all eyes were on Fed Chair Powell today as he discussed this month’s Fed meeting. The top level announcements were expected: no change in the Fed Funds rate (now at zero since last March) and continued quantitative easing as the Fed is purchasing $120 billion a month of treasuries and MBS. The question was, would the Fed’s resolve to continue the ultra-accommodative policies soften? Would there be a hint at when the Fed would start to ease up on these measures, such as lowering the monthly bond purchases. Powell stood firm especially when discussing potential inflation. Invoking classic Fed-speak, he expects inflationary data that will appear in the next few months as “transitory”. He indicated that “upward pressure on prices” over the next few months will be due to temporary factors. These include supply chain bottlenecks stemming from the sudden reopening and “base effects” as the next few months will be compared to the lows of Spring 2020. He again avoided a “taper tantrum” (Treasury sell off) by insisting he is not announcing any plans to slow down the purchases. The question is, when will he? Some Fed watchers believe he will be forced to at the June meeting as growth and inflation data may start to pile up by then. Or possibly, he may feel the right setting and time is the annual Jackson Hole conference in August. The next CPI, core CPI, PCE and core PCE readings will be watched by markets and could spur volatility in Treasuries. Powell spoke of being affected by the large homeless settlement near the Federal Reserve in Washington, he also said he will be meeting with homeless Americans soon. Perhaps the gauge he is really watching is wage inflation, evidence that the economic recovery is reaching to all levels of the economy. The 10 year Treasury has been sitting in a tight range lately at about 1.60%. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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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