FINfacts™ XXIV – No. 292 | November 3, 2021

MARKET RATES
Prime Rate 3.25%
1 Month LIBOR 0.08%
6 Month LIBOR 0.22%
5 Yr Swap 1.28%
10 Yr Swap 1.60%
5 Yr US Treasury 1.19%
10 Yr US Treasury 1.59%
30 Yr US Treasury 1.98%

RECENT TRANSACTIONS
$25,000,000 Refinance of Mixed-Use Property, 7.0% Stabilized Debt Yield, 10 Years Interest-Only; Santa Clarita, CA

Rate: 3.80% Fixed
Term: 10 Years
Interest-Only: 10 Years
LTV: 65%
Debt Yield: 7.0%
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners secured $25,000,000 in proceeds for the perm refinance of a 47-unit mixed use property in the Santa Clarita Valley, CA. The Lender provided proceeds of 65% of appraised value and underwrote to a 7.0% stabilized debt yield. The new first trust deed will refinance a high-interest bridge loan into a 10 year, 3.80% fixed, full term interest-only loan.

Several challenges were encountered when discussing the transaction with capital providers. The mixed-use property derives over 30% of its income from retail tenants which reduced the number of potential capital sources. The Property received Certificate of Occupancy during the COVID-19 pandemic in 2020. The multifamily units leased up quickly, but the retail units took longer as retail tenants navigated delays in the supply chain and permitting. Although the Sponsor was able to sign leases for all the retail spaces, they required extensive buildouts that took longer than anticipated to complete. Finally, most lenders required a stabilized debt yield of 7.5% – 8.0%, which would not provide sufficient proceeds to refinance the existing loan.

GSP was able to source a lender that was able to close the loan on its balance sheet, with the intent of securitizing it in 6 months. The balance sheet execution allowed the Lender flexibility to close the loan while the retail buildouts were still underway. The Lender was also able to underwrite to 7.0% debt yield, which resulted in higher proceeds than the rest of the market.

Advisors

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

$10,000,000 Acquisition Loan to Purchase Hotel for Multifamily Conversion; Mountain States

Rate: 7.95%
Term: 3 Months
LTV: 68% Loan to Purchase Price
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners successfully brokered both the sale and acquisition financing for an extended stay hotel conversion located in the Mountain States region. The Seller, initially intending to undertake the Project, engaged GSP to source bridge financing for the 126-apartment conversion. Most of the conversion will be cosmetic changing the feel from hotel to residential. The hotel had been closed due to COVID, but the Sponsor needed to cancel the Management Agreement with the Operator and vacate the hotel. Because the hotel was in foreclosure, the Seller put the asset in bankruptcy before the trustee sale. This complicated the transaction and resulted in closing the deal two weeks from court approval.

GSP found a buyer with experience in hotel conversions who understood the Property’s value proposition and the bankruptcy process. With limited time, GSP represented the Sponsor in sourcing $10,000,000 of 3-month Gap financing for the purchase while concurrently working on inexpensive bridge financing. No appraisal was required for the Gap loan. This was an extremely complicated financing with exceptionally short time constraints. GSP was able to serve the needs of both Buyer and Seller and successfully secure financing.

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

$3,500,000 10-Year Full Term Interest-Only Permanent Financing, 40,000 SF Industrial Business Park; Murrieta, CA

Rate: 3.42% (1.80% over the 10 Year SWAP)
Term: 10 Years
Amortization: Full-term Interest-Only
Loan to Value: 60%
Guaranty: Non-recourse
Lender Fee: Par
Prepayment: Defeasance

Transaction Description:

George Smith Partners secured $3,500,000 in non-recourse debt to refinance a Southern California industrial business park. The Property is a 40,000 square foot, 100% occupied, industrial/flex building, majority occupied by automotive tenants. The financing takes out the existing debt, distributes capital for a significant roof repair, and redistributes equity to the Sponsor. The loan was underwritten to 60% LTV. The 10-year full term interest structure maximizes cash flow for the Sponsor. The fixed-rate loan priced at 1.80% over the 10-year SWAP.

Advisors

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

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HOT MONEY
Construction and Bridge Financing Starting at 3.25% over SOFR

George Smith Partners is working with a capital provider offering up to $30,000,000 for construction and bridge financing on multifamily, industrial, office, and retail properties in the Western US and Texas/Oklahoma. Rates start at 3.25% over SOFR with a 0.25 SOFR floor. With terms up to 5 years IO at 65% LTV or 2 years IO and 70% LTV this lender offers non-recourse for multifamily properties. All other commercial real estate is recourse or partial recourse.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
“Dovish Tapering” Announcement Keeps Yields from Spiking (For Now)

Today’s Fed meeting announcement and subsequent presser by Fed Chair Powell confirmed that the tapering of monthly bond purchases has begun. The muted market reaction is a testament to how unsurprising the well telegraphed announcement was to investors (Dow and S&P up slightly, 10 year T yield jumped 6 bps to 1.60%). Pick your metaphor: “the punch bowl is not being taken away, it’s just less full”, “the Fed didn’t put the brakes on, it just eased off the accelerator”. Highly accommodative monetary policy is still in place: Fed Funds rate is at zero, billions of dollars of MBS and Treasuries are being purchased every month, the Fed’s balance sheet is at nearly $9T of bonds that they have no intention of selling anytime for years.

What is changing? Powell no longer refers to inflation as purely “transitory” and that supply/demand imbalances are persistent. Everyone is looking for clues on when rate increases will occur. Note that Bank of Canada, Bank of England, Bank of Australia are all aggressively raising rates to combat inflation. Powell pointedly remarked that, “Our tools cannot ease supply constraints” and that “the dynamic economy will adjust to imbalances and inflation will decline to levels much closer to our 2.0% longer run goal”. This is being interpreted as highly dovish and the Fed may not need to aggressively raise rates. The risk is waiting too long to raise rates (while other major banks increase) which could lead to runaway inflation and multiple rate increases in a short period. 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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