FINfacts™ XXIV – No. 274 | June 30, 2021

MARKET RATES
Prime Rate 3.25%
1 Month LIBOR 0.10
6 Month LIBOR 0.16%
5 Yr Swap 0.95%
10 Yr Swap 1.42%
5 Yr US Treasury 0.87%
10 Yr US Treasury 1.44%
30 Yr US Treasury 2.10%

RECENT TRANSACTIONS
$35,000,000 Cash-Out Refinance Anchored Retail with Fitness; Southern California

Rate: 3.25% Fixed
Term: Five Years
Amortization: Interest Only
Loan to Value: 55%
Debt Coverage Ratio: 1.35 assuming 30 Year Amortization
Origination Fee: Par
Prepayment: Defeasance

Transaction Description:

George Smith Partners originated a non-recourse cash-out refinance of a Southern California retail center co-anchored by a shuttered fitness center. This location was a top performer in the national chain prior to being mandated to close due to Covid restrictions. Although the fitness center is now opened and operating to partial capacity, the application and due diligence were completed while still dark, as was an adjacent restaurant. The application did not call for holdbacks or reserves for funding as most of the remaining collateral was operational and cash flowing. Sized to 55% of appraised pre-Covid value, the five-year, non-recourse loan was priced at 3.25% on an interest only basis. Debt Coverage Ratio was underwritten on actual collections rather than leased income. A small tenant improvement allowance was reserved at close to address future leasing activity. There is no TI/LC reserve taken from the monthly debt service.

Advisors

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

$7,800,000 Bridge Loan for Acquisition and Heavy Value-Add Repositioning for Student Housing; Los Angeles, CA

Rate: 30-day LIBOR + 345 basis point spread, 4.45% rate floor
Term: 36 months, two 12-month extension options
Leverage: 70% LTC
Amortization: Full term interest only
Recourse: Non-recourse with standard carve outs
Fee: 1.5% Origination Fee, 0.5% Exit Fee

Transaction Description:

George Smith Partners successfully placed a $7,800,000 loan for the acquisition and repositioning of a student housing property serving a major Southern California university. George Smith Partners went to a variety of lenders and identified a non-recourse capital provider who believed in the deep value-add business plan, with 23% of loan proceeds funding CapEx.George Smith Partners structured the loan at 70% of total project cost. The funding covers the acquisition, CapEx, construction costs, and the interest reserve.

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

Cash-Out Permanent Financing Loan for 4-Unit, Multifamily Property; West Hollywood, CA

Rate: 3.50%
Term: 5 Year, First 12 Months Interest Only
Amortization: 30 Years
LTV: 65%
Prepayment: 5-4-3-2-1

Transaction Description:

George Smith Partners arranged cash-out permanent financing (65% LTV) for the refinance of a 4-unit multifamily property located in West Hollywood, CA. The Sponsor had purchased and renovated the Property all cash. Building improvements included complete gutting of the units and exterior renovations. The recent improvements allowed the Sponsor to quickly lease-up the Property at market rents, thus increasing the value of the Property. Because the Sponsor had purchased the building and paid for most of the capital expenditures more than 12 months prior to the loan request, this was considered a 100% cash-out financing. This combined with the low unit count made securing a conventional lender challenging. GSP was able to leverage its resources and provided the Sponsor with a 5-year term at a low rate of 3.50%. GSP was able to structure the loan with 12 months of interest only payments, before converting to 30-year amortization thereafter. The prepayment structure is 5-4-3-2-1, giving the Sponsor additional flexibility in the coming years. The Sponsor had a short closing timeline to pull his equity out of this deal to purchase another property already in escrow. GSP worked closely with the Lender and closed the transaction in just 35 days. The Sponsor is using the cash-out proceeds to continue their business plan of purchasing and renovating additional properties.

Advisors

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

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HOT MONEY
Opportunity Zone Equity for Multifamily Projects

George Smith Partners identified a capital provider offering Opportunity Zone Equity for multifamily projects for top MSA’s. They are writing equity checks between $10 and $25 million per deal.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Inflation Fears Subside and Slow Growth Expectations Depress Treasury Yields

Last Friday’s “blockbuster” Personal Consumption Expenditures Report indicated the highest price increases since 1992. May 2021 prices increased 3.9% (overall) and 3.4% (core). The bond market barely shrugged, the 10 year jumped about 3 bps that day, hitting 1.53%. Today the 10 year is at 1.46%. The markets are increasing believing that inflation is transitory. The May, June and July numbers will be due to “base effects” of low numbers for 2020. The price increases are asymmetrical as certain sectors such as used cars, energy and transportation indices are up dramatically (remember that oil prices dramatically bottomed out in March-Sept 2020, before rising. Car prices are being overly effected by supply chain issues). Some commodity prices are dropping after hitting unsustainable peaks (lumber, copper, etc). Note that the 5 and 10 year Treasury “break even rates” (the difference between actual treasury yields and treasury inflation protected yields) is narrowing, another indicator of inflation expectations amongst investors. A major survey released last Friday showed consumer inflation expectations perceive the present price increases to be temporary. The depressed treasury yields could be an indication that economic growth is expected to sputter after this initial recovery. Also note that the infrastructure bill emerging from Washington will be smaller than earlier anticipated and is not being funded by massive new treasury debt (the compromise bill being discussed relies on unspent funds from other bills and increased IRS enforcement). This narrative fits in with recent statements by Fed officials who are more focused on full employment than price control . Remember that total employment (labor force) is still 8.5 million below pre-pandemic levels. So this Friday’s monthly employment report will be closely watched. 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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