FINfacts™ XXIV – No. 294 | November 17, 2021

MARKET RATES
Prime Rate 3.25%
1 Month LIBOR 0.09%
6 Month LIBOR 0.23%
5 Yr Swap 1.35%
10 Yr Swap 1.66%
5 Yr US Treasury 1.23%
10 Yr US Treasury 1.59%
30 Yr US Treasury 1.92%

RECENT TRANSACTIONS
$47,000,000 Bridge Acquisition Financing for 624-Unit Multifamily, 80% LTC; Houston, TX

Rate: Libor + 3.95% (4.05% Coupon)
Term: 3 Years, with 2 – 1 Year Options
Amortization: Interest Only
LTV: 80%
Guaranty: Non-Recourse
Prepayment Penalty: 18 Month
Lender Fee: 1% in / ½% Exit

Transaction Description:
George Smith Partners secured $47,000,000 for an acquisition bridge loan for a two multifamily property portfolio in Houston, Texas. To meet the sellers 30-day closing requirement, GSP used its experience and relationships to quickly identify and close this 80% interest- only financing within the required timeline. GSP was able to execute the Sponsors business plan and secure a high leveraged bridge loan at L+ 3.95 (4.05% coupon). The loan was cross collateralized with both properties, which totaled 624 Units. The Properties were operating at a going-in 5% debt yield when we closed. This interest-only loan included 100% of the capital needed for rehab.

Challenge:
There were multiple challenges regarding timing, leverage, sponsorship experience and property specific issues. Some lenders were not able to quote the transaction in the short timeframe we had to market, identify, and close this transaction. GSP aided a local family office, an international fund and a strong local operating partner who teamed up to purchase this asset in their first effort together. In addition, several lenders were over allocated in the Houston market and could not handle the size of this portfolio.

Solution:
GSP focused on the top three best lenders for this asset type. Due to our great relationships, we were able to quickly pick the best lender and expedite the application process. GSP assisted the Sponsorship team in developing a strong business plan. This included proving the benefits of the multiple sponsorship structure, as well as getting the Lender comfortable with the local partners to operate the properties. GSP understood the dynamics of each sponsorship team and helped the Lender upstand the strategy of operating the Properties as one asset. GSP knew by bundling the two properties together and creating a larger transaction that it would be more appealing to lenders. This would enable lenders to increase proceeds and decrease pricing as compared to financing two separate smaller transactions. GSP ultimately utilized one of our relationship lenders who was willing to invest the upfront time and place aggressive bridge financing, with appealing leverage, proceeds, and terms of 3 years interest-only.

 

Advisors

Bryan Shaffer
Principal/Managing Director
Ruben Bohbot
Vice President
Michael Smilove
Assistant Vice President

$16,380,000 of Permanent Financing for Revitalized Downtown Office Building; Los Angeles, CA

Rate: 3.75% (Priced 0.50% over Prime)
Term: 5 Years
Amortization: 30 Year Amortization
Loan to Value: 65%
Guarantee: Recourse
Lender Fee: 0.50%
Prepayment: Stepdown

Transaction Description:

George Smith Partners arranged $16,380,000 in permanent financing for a newly stabilized, 7-story office building in the historic core of Downtown Los Angeles. The Sponsor purchased the Property in 2017 and completed a massive renovation to completely modernize the structure, façade, and interiors. The Sponsor leased 85% of the building prior to completing the renovation, including the ground-floor retail suite which is leased to a very high-end restaurant group. Some of the tenants are marijuana-related-businesses (“MRB’s”), meaning they service companies associated with marijuana, which made the financing challenging. GSP identified a recourse bank that was comfortable with the tenants and structured a five-year loan with an earn-out for additional leasing. The financing is fixed at an interest rate of 3.75% for the entirety of the loan term and will amortize over a 30-year period.

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

$9,882,000 Refinance for 32-Unit Multifamily Property, 3.49% For 10 Years, 6 Years Interest-Only; Los Angeles, CA

Rate: 3.49% fixed for 10 years
Amortization: 6 years Interest Only followed by 30 year amortization
Prepayment Penalty: Yield Maintenance
LTV: 65%
DCR: 1.25x
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners secured $9,882,000 in proceeds for the refinance of a newly stabilized 32-unit property in the Palms neighborhood of Los Angeles. The loan is fixed at a rate of 3.49% for 10 years, with 6 years of interest-only payments. The loan is non-recourse and has no payment reserves.

Several challenges were encountered when discussing the transaction with capital providers. The Property had just reached stabilization, so GSP had to find a lender that would include the income from newly signed leases without requiring several months of operating history. The Sponsor desired to lock their low rate for 10 years. This eliminated bank financing as an option because banks price up for longer term loans. Some CMBS lenders offered very competitive rates, but the Sponsor wanted an easy and low-cost closing process. As a result, Agency financing was the best option for a 10-year fixed rate loan with partial term on interest-only payments. While in application, extensive data from comparable properties was used to support proforma expenses and maintain underwritten cash flow. The loan closed in about 60 days.

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
Jarod King
Senior Vice President
Jessica Mania
Marketing and Business Development Associate

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HOT MONEY
Non-Recourse Permanent Financing for Class A Industrial and Multifamily

George Smith Partners is working with a national balance sheet lender providing fixed-rate, long term permanent financing for Class A stabilized industrial and multifamily properties located in primary and secondary markets (excluding NY and CA). Lender services loans in-house. With loans from $25,000,000 – $50,000,000, pricing is Swaps + 1.40% floor, for 10-year terms. Pricing available for loans that go under application before year end.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
“Data Driven” Rate Environment

This week’s comments from Fed member Thomas Barkin are telling: “I think it’s very helpful for us to have a few more months to evaluate, is inflation going to come back to normal? Is the labor market going to open up?” He made it clear that more data is needed before raising rates. Now that the tapering of the Fed’s bond purchases has been quantified and announced, the next move on rates will be dependent on the direction of the economy. The Fed bought some time with the tapering announcement. The bond buying will be lowered over the next 6-8 months while the Fed is able to further gauge if inflation is transitory or more permanent. Regarding the labor market, the labor participation rate is increasingly in the spotlight. Labor participation has historically been 63-64% since the Great Recession. It dropped to 60.2% in February 2020 during the “shutdown shock” and is back up to about 61.6%. More labor participation will help the inflation picture: worker shortages are affecting the supply chain, wage inflation is spiking, etc. Participation has been gradually rising in the last few months. This week, the 10 year Treasury hit 1.65% on a strong retail sales report. Today it dipped to 1.58% on a weaker than expected homebuilding report. Look for data driven ups and downs to be the norm for a while. 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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