FINfacts™ XXIV – No. 266 | May 5, 2021

MARKET RATES
Prime Rate 3.25%
1 Month LIBOR 0.11%
6 Month LIBOR 0.21%
5 Yr Swap 0.92%
10 Yr Swap 1.59%
5 Yr US Treasury 0.79%
10 Yr US Treasury 1.58%
30 Yr US Treasury 2.25%

RECENT TRANSACTIONS
$21,000,000 Cash-Out (105% of cost basis), Non-Recourse, Pre-Stabilization Bridge Financing on a Newly Constructed and 9% Leased Apartment Community; St. Louis City, Missouri

Rate: Blended to 4.95%, Floating
Term: 18 Months
Amortization: Full-Term Interest Only
LTV: 80%
Lender Fee: 1% in / 1% out
Prepayment: Six Months Minimum Interest
Guaranty: Non-recourse

Transaction Description:

George Smith Partners successfully placed $21,000,000 in bridge financing for a 111-unit apartment community in St. Louis, Missouri that retired a high-leverage construction loan, funded a lease-up and operating reserve, converted from a recourse to non-recourse structure, materially lowered the Borrower’s cost of capital, and provided enough proceeds at close (100% of loan proceeds were released upon loan closing) to cash out 105% of the Borrower’s cost basis, although the Property was less than 10% occupied. The eighteen-month loan term provides the Borrower with time to stabilize and season the asset prior to either selling or refinancing it with long-term permanent debt in today’s low interest rate environment. GSP leveraged its expertise of the St. Louis market, long-standing lender relationships, and capital markets creativity to achieve the Borrower’s goals, which was primarily the maximum return of capital.

Advisors

Kyle Howerton
Senior Vice President
Portrait Michael Anderson-Mitterling
Senior Vice President
David Stepanchak
Senior Vice President

$14,250,000 ($229,839/unit) Cash-Out Permanent Financing for a 62-unit, Two-Property Multifamily Portfolio; Los Angeles, CA

Rate: 3.350% fixed for 7 years, converts to floating for remaining loan term
Term: 30 Years
LTV: 67%
Amortization: 5 Years Interest Only followed by 30 Year Amortization
Guaranty: Non-Recourse except for standard carve outs, “bad acts”, and environmental

Transaction Description:

George Smith Partners successfully placed $14,250,000 ($229,839/unit) in a cash-out, uncrossed (two loans) refinance of two multifamily properties totaling 62 units in Los Angeles, during the COVID-19 pandemic. The loan is fixed at rate of 3.350% for the first 7 years, then converts to a floating rate. Despite the economic uncertainty during the transaction, GSP leveraged the firm’s collective production and relationship with the Lender to close the loans with loan terms as originally structured. GSP worked the lender to diligently ensure a quick closing and to maximize proceeds while addressing COVID related concerns. Both properties had undergone extensive renovations and upgrades since the acquisition in 2018 and have maintained over 95% occupancy throughout 2020 despite the pandemic.

Advisors

Gary E. Mozer
Principal/Co-Founder
Kyle Howerton
Senior Vice President

79.5% LTV Acquisition Loan for 6-Unit Multifamily Property; Koreatown area of Los Angeles, CA

Blended Rate: 8.84%
Term: 12 Months
Loan-to-Purchase: 79.5%
Prepayment Penalty: None
Guaranty: Non-Recourse to Senior Lender, Recourse to Mezzanine Lender

Transaction Description:

George Smith Partners structured $1,590,000 of acquisition bridge financing for a 6-unit multifamily building in a well-located area of the Koreatown section of Los Angeles. The existing building is almost 100 years old and underutilizes the potential density that the site allows for. The Sponsor plans to entitle the site for a larger multifamily development down the line. A 12-month term will give them ample time to prepare to be shovel ready. GSP was able to secure a high leverage execution between a senior lender and a mezzanine lender that provided 79.5% LTV based on purchase price. The blended rate of the total debt stack is 8.84% and is interest only. While the senior loan is non-recourse, the mezzanine lender does require recourse on their portion.

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

SPEAKERS CORNER

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


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HOT MONEY
Non-Recourse Debt, Mezzanine and Preferred Equity; 85% of Cost

George Smith Partners is currently working with a nationwide balance sheet lender specializing in senior and mezzanine loans and preferred equity across all property types. Non-Recourse loans range from $5,000,000 to $25,000,000, with terms between 2-5 years, 75% LTV and 85% LTC. With rates starting at 7%, the lender targets opportunities for value-add acquisitions, refinancings/recapitalizations, conversions, and renovations and note purchases and participations.

More Hot Money ›

KIRISITS CORNER by Matt Kirisits

Tax Changes and 1031 Exchanges

The past week was a whirlwind of new tax and spending proposals as well as market-moving statements from government officials. In President Biden’s address to Congress, he laid out two proposals: a $2.3T infrastructure plan and a $1.8T American Families Plan which includes spending on childcare, education, and paid leave. Unlike the $1.9T COVID relief bill that Biden signed into law in March, the new initiatives are partially balanced out by significant tax increases. The largest concern right now for CRE investors is the proposed elimination of 1031 exchanges that have over $500,000 of capital gains. The immediate, first-order effects of eliminating like-kind exchanges for CRE would be 1) less transactional activity and 2) reduced supply, as property owners are disincentivized to sell and roll profits into a new deal.

Longer term effects are unclear as the modern economy has never existed without the benefit in place; like-kind exchanges were first added to the tax code in 1922 and revised to their current form in 1986. Accordingly, the CRE industry is gearing up efforts to get the repeal removed. The focus is on Senators that could potentially be swing votes including Manchin, Sinema, and Testor, all Democrats that are known to be more fiscally conservative. As of today, it seems likely that the 1) the size of the spending bills and tax increases will have to be reduced in order to pass and 2) the repeal of 1031 exchanges will be removed from the bill and the benefit will be preserved.

Last week, Fed Chairman Powell and most of the other Governors reaffirmed that they do not plan on raising interest rates until at least 2023. Powell remains focused on the slack in the economy and the continued lack of wage increases. However, Treasury Secretary Yellen seemed to contradict Powell yesterday, stating “it may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat.” Yellen later walked her comments back. Regardless, it is important to note that several conditions for higher interest rates are in place: a rapidly expanding economy, strong job growth, and the ever-present threat of inflation.

 

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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