FINfacts™ XXIV – No. 284 | September 8, 2021

MARKET RATES
Prime Rate 3.25%
1 Month LIBOR 0.09%
6 Month LIBOR 0.15%
5 Yr Swap 0.87%
10 Yr Swap 1.32%
5 Yr US Treasury 0.78%
10 Yr US Treasury 1.31%
30 Yr US Treasury 1.99%

RECENT TRANSACTIONS
$35,000,000 High Leverage Construction Loan for 40 To-Be-Built Condominiums; Near Lake Tahoe

Term: 24 months plus one 1-year extension option
Loan To Cost: 80%
Prepayment Penalty: 12 months minimum interest

Transaction Description:

George Smith Partners successfully secured $35,064,000 (80% Loan to Cost) in non-recourse construction completion debt financing for a luxury condominium property near Lake Tahoe. The 40-unit project is located in a tertiary market near ski resorts and overlooks Lake Tahoe. The Sponsor acquired the land and existing, partially completed, four-story concrete and steel structure and underground parking garage at a deep discount as an REO from a bank in 2015. Engineering and architectural updates were completed prior to loan closing.

The for-sale, residential product in a tertiary market presented challenges to the capital markets. GSP was able to source a lender who was familiar with the market, comfortable with the basis, comfortable with the barriers to entry and strong market demand for the product.

Advisors

Scott Meredith
Senior Vice President
John Thrall
Assistant Vice President

$20,530,000 Non-Recourse Construction Financing for a 25-Unit Luxury Beachfront Condominium, For-Sale Development; Cocoa Beach, FL

Rate: WSJ Prime +4.50%
Term: 24 Months + Two 2-Month Extensions
Amortization: Interest-Only
Loan to Cost: 64%
Prepayment: 6 Months Minimum Interest
Guaranty: Non-Recourse
Lender Fee: 1% In, 1% Out

Transaction Description:

George Smith Partners successfully arranged $20,530,000 in non-recourse senior construction financing for The Surf, a beachfront condominium project in Cocoa Beach, FL. The Project consists of 25 luxury residential units with sale prices ranging from $975,000 to $2,500,000, as well as 3 ground floor retail units. The Project is currently 75% pre-sold. Per Florida statutes, any buyer deposit amount over 10% of the purchase price may be used towards development costs, but a large portion of those deposits are not due from buyers until building top off. GSP was able to successfully secure a lender comfortable with crediting future deposits to decrease the Sponsor’s up-front equity requirement.

The Sponsor’s co-developer and GC tragically passed in early 2020, leading them to engage a new group. While the new GC had extensive experience in luxury housing development, they are relatively new to ground-up, multi-level condominium development. GSP leveraged its extensive lender network, strong pre-sales, and the Orlando-based Sponsor’s strong development track record in this submarket and product type to provide non-recourse construction financing.

The term is 24 months with interest-only payments and 6 months minimum interest. The senior note was sized to 64% LTC. GSP structured the loan, crediting future sales deposits towards the total equity requirement, thereby eliminating any additional out-of-pocket equity required at closing above the land acquisition and predevelopment costs already spent to date.

Advisors

Gilda Rivera
Senior Vice President

$3,450,000 in Permanent Financing for an Industrial/Flex Center; Southern California

Rate: 2.75% Fixed
Term: 10 years
Amortization: 5 Years Interest-Only, 25 Years Am Thereafter
Guarantee: Non-Recourse
Prepayment: Yield Maintenance Years 1-5, Stepdown Thereafter

Transaction Description:

George Smith Partners secured $3,450,000 for the refinance of an industrial/flex business park in Southern California. The Property is 66,600 square feet across 6 buildings with 31 tenants. GSP identified a lender that could lock the rate at 2.75% for more than 4 months to allow the prepayment penalty on the existing loan to burn-down. The Lender also agreed to increase the loan amount during due diligence to finance large near-term roof repairs. The loan has a 10-year term with five years of interest- only payments.

Advisors

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

SPEAKERS CORNER

Please join Evan Kinne and Ed Steffelin at the IMN Build-to-Rent, Land and Homebuilding Forum (West) in Vegas September 13-14th.

Register here: https://www.imn.org/real-estate/conference/Real-Estate-Private-Equity-Land-Homebuilding-West/Register.html


Pascale's Portrait
PASCALE'S PERSPECTIVE
Higher Than Expected Job Openings Data Indicates Employment “Match Up” Imbalance

Today’s higher than expected job openings report (10.9 million openings, up from 10.2 million in June) and comments from Fed Governor Bullard highlight the dilemma facing policy makers. The economy is still about 5 million jobs short of pre pandemic levels. The Fed’s policy objectives are full employment and low inflation. The Fed has been willing to allow inflation to “run hot” (temporarily) while pursuing full employment. There continues to be a mismatch in demand. Example: there are 3.5 million openings in the hospitality sector but less than 1.5 million unemployed whose last job was in that sector. The pandemic’s societal effects have notably included a “Great Reassessment” by much of America’s workforce. Resignations are over 13% higher than pre-pandemic levels. Yesterday’s NY Fed Labor Market Survey indicated workers are expecting higher wages and feel they have leverage as labor shortages hit certain industries. So maybe the Fed’s continued easy money policies are limited in their effect (another “new normal”). Pouring money into the system will not solve these demand imbalances. Quantitative easing and low interest rates will not retrain workers. St Louis Fed Bank President made that point today as he advocated for tapering bond purchases “this year” and ending those purchases “by the first half of next year”. He indicated that the employment challenge is now “getting the workers matched up” and not creating demand. Meanwhile, major companies (Walmart, McDonalds, etc.) continue to increase wages hoping to attract and retain workers. This is of course inflationary and not transitory. The 10 year T is at 1.34% with a closely watched auction of new 10 year bonds scheduled for this afternoon. 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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