FINfacts™ XXIV – No. 276 | July 14, 2021

MARKET RATES
Prime Rate 3.25%
1 Month LIBOR 0.09%
6 Month LIBOR 0.17%
5 Yr Swap 0.90%
10 Yr Swap 1.37%
5 Yr US Treasury 0.80%
10 Yr US Treasury 1.34%
30 Yr US Treasury 1.92%

RECENT TRANSACTIONS
$38,600,000 Limited Recourse, Cash Neutral Mid-Construction Financing for a 122-Unit Multifamily; Santa Rosa Beach, FL

Term: 12-month term with 6-month extension option, extension fee @ 1.25%
LTC: 85%
Fee: 2 points in – 0 points out

Transaction Description:

George Smith Partners successfully arranged a $38,600,000 mid-construction refinance loan for a multifamily project in Santa Rosa Beach, Florida. The limited-recourse loan refinanced out the existing debt and provided additional proceeds to complete the development and flexibility to explore a condo sell out. The 122-unit Project will include state-of-the-art facilities, including a general store, a fully equipped restaurant, fitness center for guests, and a workspace. The Project is expected to receive certificate of occupancy by September 2021.
GSP was retained when the Project was 70% complete with an expected certificate of occupancy by September 2021. Since the Project began in 2019, nearly all the land in the area had been purchased by developers at a higher basis and condos began to sell at higher than $500/psf. The Sponsors seized the opportunity to add additional equity, bringing the Project to condo-specifications and the ability to sell out at a higher valuation. GSP canvassed a broad range of lenders with long-standing relationships and fielded multiple proposals. GSP worked with the Sponsor to find a lender that reached a higher proceeds level and provided the flexibility to lease up the Property as multifamily, sell units as condos or a mix of the two.

Advisors

Ed Steffelin
Senior Vice President
Evan Kinne
Senior Vice President
Miles Musalman
Senior Vice President
Portrait Blair Lewis
Analyst
Jordan Lipton
Analyst

$5,790,000 Non-Recourse Cash-Out Refinance for Three Multifamily Properties; LA County

Rate: 3.40 Fixed
Term: 5 Years
Amortization: 30 Years
LTV: 65%
Prepayment: 3%, 2%, 2%, 1%
Guaranty: Non-Recourse

Transaction Description:
George Smith Partners successfully arranged the cash-out refinance of a three-property multifamily portfolio in Los Angeles County. GSP worked with the Borrower to rearrange his cash flows and expenses that were spread across a larger 10-property portfolio to break out the true operations of three buildings. GSP identified a fixed rate lender that could provide a non-recourse loan with approximately $1,000,000 return of equity to the Sponsor. The 5-year bank loan is fixed at 3.40% and is 65% of appraised value.

GSP worked with the Lender on the underwriting and maximizing the cash flow of the Property to provide the Sponsor with the additional $1,000,000 used for future real estate acquisitions. GSP helped the Sponsor throughout the entire refinance process including the payoff of the previous loan.

Advisors

Steve Bram
Principal/Co-Founder
Allison Higgins
Senior Vice President
David R. Pascale, Jr.
Senior Vice President
Nick Rogers
Vice President
Patrick O’Donnell
Vice President

$4,500,000 Acquisition and Redevelopment Loan for Senior Living Facility; 30 Day Closing; Chattanooga, TN

Rate: 6.15% floating
Term: 30 Months
Amortization: Interest Only
Loan to Cost: 75%
Prepayment: Open
Recourse: Non-Recourse

Transaction Description:

George Smith Partners was engaged to procure a high leverage, non-recourse loan with a 30-day closing timeline for a strategic acquisition of a 144-unit senior living facility in Chattanooga, TN. The Property, which fits in with a larger +$150,000,000 master planned community, presented a unique opportunity for the Borrower to greatly expand points of access and enhance the status of future developments. The chosen Lender understood the value proposition of future development and the Sponsorship’s track record of delivering high quality MPC’s in secondary markets. GSP worked with the Sponsor and Lender to procure a 15-day appraisal and all due diligence within a week of engagement to position the loan to close within 30 days.

Advisors

Kyle Redmond
Assistant Vice President

SPEAKERS CORNER

Please join us this Friday for the webinar, “Housing in 2021: Multifamily, Single Family Attached & Detached, For Sale & For Rent”.

Register Here: https://us06web.zoom.us/webinar/register/WN_EtPayloMQNiQvRNLgKfhjw

Date: Friday, July 16, 2021

Time: 10:00am PT | 1:00pm ET


KIRISITS’ CORNER by Matt Kirisits

High Inflation Is Transitory and Interest Rates Will Stay Flat in 2021

The overwhelming financial narrative throughout the first half of 2021 was that government stimulus and Federal Reserve money printing created an unstoppable trend towards high inflation, labor market imbalances, asset bubbles, and higher interest rates. However, the overwhelming financial narrative was wrong. The more likely scenario is that above-average inflation is transitory, the labor market will sort itself out, asset price growth will cool off rather than crashing, and interest rates will remain flat.

Year-over-year inflation continues to come in high; as of May 2021, the 12-month increase in core inflation was 3.4% and the 12-month CPI (Consumer Price Index) increase was 5.4%. However, this is still due to the “base effect” of comparing 2021 to 2020. Undoubtedly there have been sharp increases in the prices of airfare, lodging, motor vehicles, and appliances. Many of these increases are due to either 1) post-COVID spikes in demand or 2) supply chain bottlenecks that will resolve within a few months. For instance, the price of lumber has fallen almost 50% from its peak in early May and is now about even for the year.


Source: Bureau of Labor Statistics

The temporary spike in inflation represents real GDP growth and strong consumer demand. Q1 GDP growth was 6.4% and initial Q2 data looks to be equally strong. This growth has resulted in a rapid decrease in the unemployment rate, which fell from 6.7% in December to 5.9% in June. The Fed defines maximum employment as the “lowest level of unemployment that the economy can sustain while maintaining a stable inflation rate.” 5.9% is still nowhere close to that level.

One of the market’s greatest concerns is that the Fed will abandon its stated intention to keep rates near zero through at least 2023. In this scenario, higher inflation will prove persistent and force the Fed to start raising rates earlier. However, it is important to note that inflation was 1% or below for most of 2020. The Fed has always stated that its goal is average inflation of 2% and so it is willing to let prices run hot for now. The Fed last began to tighten in 2016, 8 years after the great financial crisis. It took years of slow and steady growth and declining unemployment before the Fed raised rates, and the increases throughout 2016-2017 were slow and gradual. This time around, the Fed will be equally conservative and require several years of positive economic data before increasing rates or tapering their purchase of Treasuries. The latest Monetary Policy Report on 7/9/21 stated that, “The Committee expects it will be appropriate to maintain the current target range for the federal funds rate until labor market conditions have reached levels consistent with its assessments of maximum employment and inflation has risen to 2% and is on track to moderately exceed that rate for some time.”

Thus, short-term rates are likely to stay low, in line with the Fed’s current projections. Additionally, the 10-year Treasury rate will stay muted through at least the end of the year and continue to trade in a narrow range. Very few commentators will admit it, but the Fed may be correct, and the current above-average inflation will prove transitory.

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


WWW.GSPARTNERS.COM

Constellation Place
10250 Constellation Blvd., Ste. 2700
Los Angeles, CA 90067
Office 310.557.8336
Fax 310.557.1276
Email finfacts@finfacts.net
© 1999 - 2021 George Smith Partners, Inc. DRE # 00822654 FINfacts is an ePublication of George Smith Partners, Inc. For Promotional Purposes Only. All Rights Reserved.
Hi, just a reminder that you're receiving this email because you have expressed an interest in George Smith Partners. Don't forget to add finfacts@finfacts.net to your address book so we'll be sure to land in your inbox!