FINfacts™ XXIV – No. 290 | October 20, 2021

MARKET RATES
Prime Rate 3.25%
1 Month LIBOR 0.09%
6 Month LIBOR 0.17%
5 Yr Swap 1.22%
10 Yr Swap 1.64%
5 Yr US Treasury 1.15%
10 Yr US Treasury 1.65%
30 Yr US Treasury 2.13%

RECENT TRANSACTIONS
$46,000,000 Construction Loan for Phase 1 of a 400-Unit Multifamily Development; Bozeman, MT

Rate: Sub 3%
Term: 3 years + 2, 1-year extensions
Guaranty: Recourse, Burning Off at C of O
Leverage: 60% Loan-to-Cost

Transaction Description:

George Smith Partners successfully placed financing for phase 1 of a 400-unit multifamily development located in Bozeman, MT. The Project will be a significant upgrade to other assets in the market, offering an in-complex coffee shop, yoga studio, clubhouse, and multi-acre park. Unlike the competition, many units will have direct access to garage parking.

The garden style project is located within an Opportunity Zone, which drew attention from national equity groups eager to deploy capital. GSP, a leader in Op Zone Capital advisory, brought several equity partners to the table who understood the value add to the market.

Phase 1, consisting of 268 units, is set to be complete by late 2023. Phase 2, consisting of 132 units, will commence construction in 2023, with the entire project stabilizing in 2024. This market has seen a price increase of over 200% in housing since 2016. It continues to grow at a double-digit rate largely due to remote work, the expansion of the Big Sky and Yellowstone resort destinations, and Kevin Costner being amazing.

Advisors

Jonathan Lee
Principal/Managing Director
Shahin Yazdi
Principal/Managing Director
Matthew Kirisits
Vice President
Miles Musalman
Senior Vice President
Kyle Redmond
Assistant Vice President
Jessica Mania
Marketing and Business Development Associate

$5,340,000 Land Acquisition Loan for 226 Affordable Housing Units; Southern California

Rate: 5.50%
Term: 18 Months, One 6 Month Extension
Amortization: Interest Only
LTV: 60%
Prepayment: None

Transaction Description:

George Smith Partners arranged $5,340,000 in a pre-entitlement land development loan for a proposed 226-unit affordable housing project in California. The 60% loan to acquisition is priced at 4.50% over LIBOR (with a 5.50% floor) interest only. The Sponsor is addressing a major need for affordable housing in the state. GSP secured a unique capital source to arrange favorable and flexible capital that met with the Sponsor’s timeline. The interest-only land loan was priced at 5.50%, with an 18-month term and one 6-month extension option. There is additional flexibility with the loan structure having no prepayment penalty. Despite dealing with a strict closing deadline on the purchase, GSP was able to identify a lender who could execute on terms and close within the purchase agreement.

Advisors

Reuven Risch
Vice President

$3,987,000 Permanent Financing for 28-Unit Apartment Building; Downtown Phoenix, AZ

Rate: 3.18%
Term: 7 Years
Amortization: 30 Years
LTV: 70%
Origination Fee: Par
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners secured $3,987,000 for the refinance of a multifamily building located in Downtown Phoenix, AZ. The Sponsor originally purchased the property as a two-story building. Since acquisition, the Sponsor added a third story to the existing structure, increasing the total unit count by 55%. Along with the addition, they renovated all the units to maximize the property value. The Property sits in a fantastic location, walking distance from a wide variety of restaurants and entertainment, and Arizona State University’s Downtown Campus. The non-recourse financing is fixed at a 3.18% rate for 7 years. The 70% LTV financing provided a return of all initial equity invested.

Advisors

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

SPEAKERS CORNER

Check out the replay of our webinar, The Demand for Housing and the Future of the American Home! Ivy Zelman shares her predictions for the housing market as well as details about her new book, Gimme Shelter.

Click here for the replay: https://www.youtube.com/watch?v=OmxsItyLkM4&t=39s


Pascale's Portrait
PASCALE'S PERSPECTIVE
Interest Rate Scenarios

In the wake of last week’s Fed announcement (tapering bond purchases) and continued “sticky” inflationary data, a future path is becoming clearer. What’s next? Fed plans on decreasing monthly bond purchases from $120 billion (now) to zero (June/July 2022). If inflation is still persistent, expect the Fed to start raising rates in Q3/Q4 2022. How much? Recent “dot plots” and comments from Fed officials suggest an eventual target rate of 1.75%. Call 1.75% the “near term neutral rate”. So that means about 6 quarter point rate increases. Note that the post Great Recession high point was 2.50% in 2018. The CME futures index shows a 50% probability of an increase by June 2022, 60% by July, 73% by September, and 60% expect two increases by December.

Fixed Rates: As the Fed buys fewer Treasuries, Mortgage Backed Securities and signals rate increases; Treasury yields are expected to rise to attract more private buyers. Less buying of MBS may impact loan spreads.

Floating Rates: LIBOR and its likely successor, SOFR, are both expected to fluctuate in nearly lock step with the Fed Funds overnight rate (the “headline” rate that leads the Fed meeting announcement). Of course, floating rate borrowers would see increases in their monthly debt service.

However, this is “the plan” and plans can change based on market conditions and/or unforeseen disruptions. As the stock market hits another record high today during the “perfect storm” of low rates and high consumer demand, it’s not hard to imagine that a “mark to market” may occur across many asset classes. As the pandemic’s impact has been unprecedented in the era of the modern global economy, the recovery is uncharted territory. Central bankers will have their hands full in navigating it. 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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