FINfacts™ XXIV – No. 273 | June 23, 2021

MARKET RATES
Prime Rate 3.25%
1 Month LIBOR 0.09%
6 Month LIBOR 0.16%
5 Yr Swap 0.96%
10 Yr Swap 1.47%
5 Yr US Treasury 0.88%
10 Yr US Treasury 1.49%
30 Yr US Treasury 2.11%

RECENT TRANSACTIONS
$10,000,000 JV Equity for Workforce Housing; Tertiary Mountain States

All Terms Confidential

Transaction Description:

George Smith Partners successfully placed $10,000,000 of joint venture equity for the construction of a 134-unit workforce housing development in a tertiary Mountain State market. There is considerable demand due to the quality of life and a D1-university in close proximity. GSP structured a 90/10 co-invest with an out of state developer with a robust pipeline.

Though guided to an expeditious close, the equity raise faced a few challenges. GSP brought the deal to market early in COVID when the economic ramifications of stay-at-home policies were uncertain. Additionally, the Project’s location in a tertiary market with only 50,000 people led to multiple groups being hesitant to deploy capital. However, the effects from COVID and the state’s pro-business economic policies eventually were shown to be a positive factor in multifamily demand.

Advisors

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

Retail Acquisition Financing with Less Than 100% Collection Rate; Los Angeles, CA

Rate: 3.75%
Term: 7 years
Amortization: 25 years
LTV: 50%
Prepayment Penalty: None
Minimum Interest Payments: None
Guaranty: Full recourse
Banking Relationship/Deposits Required: None

Transaction Description:

George Smith Partners successfully arranged bridge acquisition financing for a 6-unit retail property in Los Angeles, California. The Subject Property took a major hit with rent collections during the Covid-19 pandemic and was operating below market conditions. GSP identified a capital provider who was able to offer an aggressive rate and terms, required no holdbacks of any sort, required no deposits to be held at their branch and provided an open prepayment penalty structure that allowed the Sponsor flexibility once the Subject Property is stabilized and seasoned.

Advisors

Reuven Risch
Vice President

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HOT MONEY
Conventional and SBA Hotel Financing

George Smith Partners identified a hotel financier funding acquisition, refinance, and PIP/Renovation in the Western United States. Fixed rates are between 5.50% and 6.25% and floating rates start at Prime + 2% and up, for loan terms up to 7 years, and leverage up to 65% of value. Reserves are required for operating deficits and debt service where needed. SBA financing is available for properties located in California, Idaho, Utah, and Arizona for non-CBD locations for loan amounts up to $12.5 million (504) and $5 million (7a). Rates for the 5-year fixed (504) are 6.5% Floor and floating rates (7a) – P + 275. Leverage is up to 75% of value with 10, 20, or 25 year terms.

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Congratulations Steve Bram

We are pleased to congratulate Steve Bram, Principal/Co-Founder at George Smith Partners on his official installation as President at Stephen Wise Temple.


Pascale's Portrait
PASCALE'S PERSPECTIVE
Long Term Treasury Yields Stay the Course In the Wake of Market Volatility

We saw market volatility in the wake of last Wednesday’s Fed Meeting. Markets were reacting to the perceived hawkishness of the Fed as possible rate hikes in 2023 or even 2022 were being discussed (note that previously the Fed had insisted the first rate hike would be in 2024). The Dow plunged last Thursday/Friday, before rallying on Monday morning. Yet, the 10 year treasury yield actually dropped during the week (no sell off), unlike the infamous 2014 “Taper Tantrum”. Why? First off, there was a sell off in short term treasuries (from 30 days to 2 years) with those yields rising, while long term yields (5 to 30 years) lowered. Markets sold off on the short term because those treasuries are more sensitive to Fed rate increases as the Fed Funds Rate is an overnight rate. Long term rates dropped as markets were anticipating a scenario whereby the Fed rate increase hampers economic growth (10-30 year treasury yields often fluctuate with growth expectations). The yield curve thereby flattened. Fed Chair Powell continued to assuage market fears this week in his congressional testimony. “We will not raise interest rates pre-emptively because we fear the possible onset of inflation”. Today the 10 year closed at 1.49% down from last Wednesday’s 1.56%.

 

Spotlight on Washington DC, news for commercial real estate: The Supreme Court ruled 7-2 today that the head of the FHFA can be replaced by the President without “cause”. President Biden is expected to name a replacement for Mark Calabria, the existing head of the FHFA. How does this affect commercial real estate? The FHFA has been the conservator of Fannie Mae and Freddie Mac since 2009. The FHFA was put in charge of the agencies in the wake of the Great Recession and the housing market crash. Since then the FHFA has instituted annual caps on multifamily loan originations by Fannie/Freddie. The caps for 2021 are $70 billion for each agency. Note that the agencies originate about 50% of total apartment permanent loan volume. Today’s news is significant as Calabria was a proponent of privatizing the agencies. That would remove the famous “implied Federal Government guaranty” for Fannie and Freddie bonds. That would result in an uncertain future for the agencies as the private sector may not actively trade Fannie and Freddie’s bonds at the spreads we see today. This would possibly increase borrowing costs for apartment owners. Fannie and Freddie apartment loan rates impact values and cap rates nationwide and interest rates amongst private lenders (banks, life companies, funds, etc). Calabria’s replacement is expected to continue the Federal Government’s involvement in the agencies. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

More Perspectives ›

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