FINfacts™ XXIV – No. 285 | September 15, 2021

MARKET RATES
Prime Rate 3.25%
1 Month LIBOR 0.08%
6 Month LIBOR 0.15%
5 Yr Swap 0.92%
10 Yr Swap 1.35%
5 Yr US Treasury 0.80%
10 Yr US Treasury 1.30%
30 Yr US Treasury 1.86%

RECENT TRANSACTIONS
$33,000,000 Stretch – Senior Non-Recourse Construction Loan for Ground-Up Luxury Condominiums; Los Altos, CA

Rate: L + 8.25% w/ floor of 9.0%
Term: 30 months
LTC: 75%
Prepayment Penalty: 9 months
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners successfully advised on $33,000,000 in construction financing for a 27- unit luxury condominium project to be built in downtown Los Altos, CA. This high-end offering is the first larger scale project for the newly formed, but individually experienced sponsorship group. The Sponsor has significant historical ground-up experience and will self-perform as the General Contractor. GSP worked through several strategies with the Sponsor including preferred equity, mezzanine debt and an all in one, stretch-senior execution. Ultimately, GSP successfully obtained several highly reliable options for each strategy and the Sponsor selected an integrated full-service construction lender. GSP negotiated a land value contribution in excess of cost and as a result, the land lift allowed the Sponsor to invest less up-front equity than otherwise required to close the transaction.

The Sponsor projects completion of the project in late 2023. Due to the supply constrained market for the condo units, they expect the project to be completely sold out shortly thereafter.

Advisors

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

8 Day Close on an $11,000,000 Cash-Out Loan for a Spec Single Family Home; Southern California

Rate: 7.99%
Term: 12 months
Amortization: Interest Only
Lender Fee: 1%
Prepayment or Minimum Interest Requirement: None
Legal/Loan Doc Fee: $425

Transaction Description:

George Smith Partners successfully advised on $11,000,000 for cash-out financing for the completion of a high-end luxury home in Los Angeles, California. The loan retired a higher interest rate and was also closed before certificate of occupancy was issued. GSP was able to source a lender who understood the significant value of the home from day one, did not require an appraisal, was comfortable with the Sponsor’s ability to receive COO, did not require the Sponsor to holdback any interest in a reserve account and did not have a minimum interest due or require a prepayment penalty. The 12-month loan term was structured to provide the Sponsor with time and flexibility to obtain certificate of occupancy and sell the asset within the Sponsor’s timeline.

Advisors

Reuven Risch
Vice President

$9,542,000 Take-Out Refinance of Owner-User, Flex Creative Office & Warehouse; Los Angeles, CA

Rate: 3.625% Fixed
Term: 3 Years
LTV: 65%
Prepayment: None
Guaranty: Full Recourse

Transaction Description:

George Smith Partners successfully arranged a take-out loan of $9,542,000 for a recently renovated, two-story, flex property just south of downtown Los Angeles. The total collateral consists of a 40,417 SF building and three separate surface parking lots totaling 86 spaces. The Sponsor, a repeat client, acquired the Property two years ago as part of a three-property portfolio that GSP arranged the financing for. Those proceeds were used to complete an adaptive reuse of this former industrial building into creative office and warehouse. The Sponsor moved its headquarters to this location and occupies over half of the space. The remaining units for lease attract tenants priced out of the more expensive downtown LA and Culver City areas.

There were significant challenges during the construction period, including a total loss fire on one of the properties within the acquired portfolio, the impact of COVID-19 on the Sponsor’s businesses and a maturing loan with the acquisition lender. GSP leveraged its strong relationships and financing expertise to work out extension and repayment solutions with the existing lender while identifying a new capital source to provide favorable terms for owner-user financing. The loan amount turned out to be well above the acquisition price and renovation costs.

Advisors

Antonio Hachem
Principal
John Choi
Vice President
Wendy Wang
Vice President
Cornelius Baliukonis
Assistant Vice President

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HOT MONEY
High Leverage Non-Recourse Bridge and Acquisition Financing

George Smith Partners is placing high leverage non-recourse bridge debt up to 80% + of cost through a national portfolio lender. Funding value-add transactions from $2,000,000 to $30,000,000 the Capital Provider offers flexible loan structures with terms up to 5 years. Floating rate pricing starts from SOFR + 325 – 425 (SOFR floor of .25%). The Lender has a particularly strong appetite for multifamily (including fractured condos), retail, office, industrial, self-storage, and mobile home parks located in the growth areas in the south, Texas, Florida, Georgia, Ohio, and Kentucky.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Data Indicates “Cooling” of Inflation (for now)

This week’s release of the August CPI report indicated lower than expected inflation. The headline numbers were the annual price increases: 5.3% actual vs 5.4% expected. Markets focused on the monthly increase in core CPI which rose just 0.1% vs 0.3% expected. Supply chain issues are proving to be “stickier” and less “transitory” than previously thought, (example: computer chip shortages which are shutting down major segments of auto production and delivery are expected to continue well into 2022). This report should give the Fed some breathing room to start pulling back on bond purchases near year end and not push tapering to start sooner. The 10 year is at 1.30%.

The Fed meets next week. Speaking of “the data”, the traditional CPI report from the Labor Department’s methodology does not track prices of goods purchased online. Adobe Digital Insights released a report this week indicating that online prices have risen for 15 consecutive months and increased by 3.1% year over year. This is significant as online prices fell at a 3.9% annual rate from 2015 to 2019. The willingness of online sellers (Amazon) to accept lower margins for greater market share has helped keep inflation in check for much of the post Great Recession era. Also, online purchases grew from 16% of consumer spending in 2017 to 20% today. The pandemic increased this of course as people are now buying a wider variety of goods online. The inflation “sticky” vs “transitory” debate is not settled. 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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