FINfacts™ XXIV – No. 267 | May 12, 2021

MARKET RATES
Prime Rate 3.25%
1 Month LIBOR 0.09%
6 Month LIBOR 0.19%
5 Yr Swap 0.95%
10 Yr Swap 1.67%
5 Yr US Treasury 0.87%
10 Yr US Treasury 1.70%
30 Yr US Treasury 2.35%

RECENT TRANSACTIONS
$41,100,000 Non-Recourse Stretch Senior Construction Loan for 180 Micro-Unit Multifamily Development; Hollywood, CA

Rate: LIBOR + 7.50 %
Term: 30 Months + 6 Month Extension
Loan-To-Cost: 80%
Stabilized Loan-To-Value: 75%
Amortization: Interest Only
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners placed a $41,100,000 Non-Recourse, stretch senior construction loan for the ground-up development of a 6-story micro unit/co-living project in Hollywood, California. When complete, the Project will consist of 180 fully furnished, all-inclusive micro units within 49 pods with an average micro unit size of 276 sf. The Project lies in an Opportunity Zone.

Several hurdles presented themselves such as concerns about the newness of the asset class and the availability of direct comparable properties. Also, the Sponsor had already begun excavation & shoring work which created challenges in obtaining full title insurance coverage.

GSP focused on the Project’s per micro unit price rather than a per pod price to get the Lender comfortable with comparable projects. Further attention was given to the Project’s affordability as each micro unit comes fully furnished with an all-inclusive rental rate. GSP also stressed the Project’s unparalleled location, walkability to every major amenity in Los Angeles, the number of local employer hubs, and significant demand drivers from transient tenants looking for fully furnished offerings. GSP worked with the title company to successfully resolve all title insurance challenges that were presented and executing a high-profile marketing campaign to ensure that the capital markets appropriately understood the unique asset type. The process also included structuring and marketing the deal with several different capital stack variations (including a concurrent separate marketing effort for an A/B structure) to find the best financing option for the transaction. These efforts resulted in a successfully expedited process with a close in approximately 45 days from entering application.

Advisors

Shahin Yazdi
Principal/Managing Director
Jonathan Lee
Principal/Managing Director
Jarod King
Senior Vice President
Matthew Kirisits
Vice President
Kyle Redmond
Assistant Vice President

$11,825,000 Cash-Out, Non-Recourse, Permanent Financing with a 3.35% Coupon for a 20-Year Term on an Office Property; Fayetteville, Arkansas

Rate: 3.35% (fixed) for twenty years
Term: 20 years
Amortization: 20-year amortization
LTV: 68%
DSCR: 1.05x
Lender Fee: Par
Prepayment: Yield Maintenance
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners successfully placed $11,825,000 ($200/SF) in non-recourse financing that provided substantial cash-out to the Borrower with a 3.35% fixed-rate coupon for a 20-year loan term on a University-affiliated research and technology office building during the COVID-19 pandemic. The loan was creatively structured as a credit tenant lease financing due to the University’s backstopping the Property’s cash flow through a master lease. GSP worked with the Borrower, Lender, and University to amend the master lease so that it satisfied the needs of all three parties to facilitate both the refinancing as well as successful donation of the building to the University’s technology foundation, which occurred concurrently with the close of this financing.

Advisors

Kyle Howerton
Senior Vice President
Portrait Michael Anderson-Mitterling
Senior Vice President
David Stepanchak
Senior Vice President
Portrait Saman Yazdi
Analyst
Portrait Robert Gallagher
Analyst

High Leverage Acquisition Land Financing of $5,880,000 for Build By-Right Land, to-be 82 Multifamily Units, 75% LTV; Koreatown area of Los Angeles, CA

Rate: 5.50%
Term: 18 Months, One 6 Month Extension
LTV: 75%
Prepayment: None

Transaction Description:

George Smith Partners arranged $5,880,000 in acquisition land financing for a 18,000 SF vacant lot to be developed into 82 workforce housing units located in the Koreatown area of Los Angeles, CA. The Sponsor is addressing the need for workforce housing in this area of Los Angeles. There is a gap between high housing prices/rent and employee household incomes. This is creating a shortage of affordable housing. The loan represents 75% of the purchase price and is structured with a holdback feature to cover the predevelopment soft costs to bring the Project to permit-ready status. The interest-only land loan was priced at 5.50%, with an 18-month term and one 6-month extension option. The extension option gives flexibility to the Sponsor should they be unable to pull permits within 18 months. There’s additional flexibility with the loan structure because there is no prepayment penalty. Amid market uncertainty, GSP was able to leverage their network to identify land lenders who could provide certainty of execution. Despite being on a strict closing deadline, GSP was able to identify a lender who could close within the required deadline.

Advisors

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

SPEAKERS CORNER

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

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


Pascale's Portrait
PASCALE'S PERSPECTIVE
Blockbuster CPI Above Expectations, Fed Not Worried (Yet), Stock Markets Tumble

Today’s CPI report was expected to indicate an annual increase of about 3.6%. The actual number at 4.2% is the highest annual increase since 2008. The monthly gain of 0.9% in core CPI was the highest since 1981. Stock markets sold off yesterday afternoon on nervous anticipation of the report and then sold off big today after the release. The Dow and S&P indices were both down around 2% today. Fed and Treasury officials referred to it as a “single data point” and labeled it as “transitory”. However, investors recall the runaway inflation of the late 70s and the consequences of the bitter pill of skyrocketing interest rates prescribed by the Fed in the early 1980s. The 10 year T sold off with the yield hitting 1.70%, 20 bps above last Friday’s opening of 1.50%. The next critical level is 1.77%, the post pandemic era high from late March. The CPI report showed some major price increases in certain sectors: 21% for used car and truck prices (10% in the last month alone), energy prices jumped 25%. Shelter (rent) was up 2.1% year over year. Many commodity prices hitting recent highs include: lumber, steel, copper, semiconductors, corn, poultry, etc. Meanwhile, there is “unbalanced employment” as shortages of workers are affecting industries that are re-hiring due to pent up demand. The Fed policy makers are touting the “base effects” of the inflation numbers that won’t play out until July/August (March-June 2020 numbers were crushed during the initial shutdowns). Issues such as inefficient supply chains, worker shortages stem from the sudden pandemic recovery for which there is no precedent. Still, every data point for the next few months will be endlessly analyzed for the answer: real or transitory? High rates or low rates? How will the cost of capital affect asset prices? 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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