FINfacts™ XXIV – No. 297 | December 8, 2021

MARKET RATES
Prime Rate 3.25%
1 Month LIBOR 0.10%
6 Month LIBOR 0.28%
5 Yr Swap 1.39%
10 Yr Swap 1.60%
5 Yr US Treasury 1.27%
10 Yr US Treasury 1.52%
30 Yr US Treasury 1.89%

RECENT TRANSACTIONS
$84,000,000 Non-Recourse Bridge Financing for the Completion and Stabilization of a 270-unit, 885-bed Student Housing Project; Merced, CA

Rate: L+ 4.75% with 0.10% Floor
LTC: 80%
Loan-to-Stabilized Value: 75%
Term: 36 months with 2 twelve-month extensions
Lender Fee: 0.50% in/ 0% exit

Transaction Description:

George Smith Partners arranged $84,000,000 in non-recourse, bridge financing for the completion and stabilization of a 270-unit, 885-bed student housing complex in Merced, CA. The new loan, which replaced a higher cost construction loan, was consummated, and closed prior to the City issuing the final certificate of occupancy. This is the first completed student housing project in Merced and is uniquely positioned to serve the growing enrollment of both UC Merced and Merced City College. The Project faced significant challenges due to the global COVID pandemic which caused cost overruns and setbacks due to labor and material shortages. The 80% leverage loan will provide the capital required to complete the Project, lease up and season the Property, and allow the Sponsor to repatriate excess equity. Additionally, the development included the use of EB-5 equity which some capital providers are hesitant to work with. GSP worked with several reliable, patient, and open-minded lenders who understood the unique risks and opportunities in the market and ownership structure which resulted in a lower cost to the Sponsor.

Advisors

Scott Meredith
Managing Director & Principal
John Thrall
Vice President

$14,370,000 Non-Recourse Bridge Financing for a Multifamily Asset; Los Angeles, CA

Rate: L+355 (0.25% Floor)
Term: 36 Month Term (2, 12-Month Extension Options)
Origination/Exit Fee: 1.00% / 0.50%
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners successfully arranged $14,370,000 in bridge refinancing for a 48-unit garden-style apartment community in the heart of Inglewood, Los Angeles. The Property is located less than 10 minutes from the newly constructed, high-traffic SOFI Stadium – 80,000 seats and home of the Los Angeles Rams and Chargers football teams. The Sponsor plans to renovate several non-vacant units in the building which are scheduled for tenant buyouts over the coming months, along with renovating vacant units to bring rents up to market. There is over a 50% rental upside from the current rent roll. The recapitalization provided future funding for capital expenditures and related overhead costs.

The Greater Inglewood submarket has maintained low vacancy rates at or below 4% for the past decade. The Sponsorship team recognized the Property’s underlying value, bolstered by low vacancies and subsequent demand in a rapidly developing submarket. GSP was able to identify a Lender who understood the added value of the proposed business plan, sheer lack of more affordable housing in the Metro, and Inglewood’s fast-growing market. The loan carried a 3-year term priced at 1 Month Libor + 355 basis points with a 0.25% floor and notably, included a significant cash-out to the Sponsor.


$5,512,000 Construction Financing for 25-Unit Multifamily Development; Los Angeles, CA

Rate: 4%
Term: 3+1+1
LTC: 55%
Guaranty: Full Recourse

Transaction Description:

George Smith Partners secured $5,512,000 of senior construction financing for the development of a 6-story, 25-unit ground-up multifamily building. The Transit Oriented Development (TOD) multifamily Project is within three blocks of the Wilshire/Western Metro station situated in the Koreatown neighborhood of Los Angeles.

Compared to other areas in Los Angeles, Koreatown has seen a temporary influx of new units in the marketplace. The new supply, coupled with the pandemic, has slowed the rapid rental growth the sub-market has become known for. As a result, there was some hesitation from lenders. GSP generated a wide capital market that allowed the Sponsor to consider several options for the development of the Project. The strong financial position of the Sponsor, along with the extensive relationship with their general contractor, contributed to both pricing and leverage. The 36-month recourse financing is priced at 4% and structured with two, 12-month extension options.

Advisors

Jonathan Lee
Managing Director & President, AXCS Advisors
Shahin Yazdi
Managing Director & Chief Operating Officer, AXCS Capital
Kyle Redmond
Vice President

Kirisits’ Corner by Matt Kirisits

Volatility Returns as Treasury Rates Decline

For most of October and November, stock market indices charged relentlessly higher and continued to make all-time highs. The 10 yr T gradually increased to a recent high of 1.68% reflecting optimism about continued strong economic growth. Properties continued to trade at record low cap rates and CRE capital markets were highly liquid with very competitive rates. Yet, beneath the surface, there were concerns about persistent 5%+ inflation, record-high valuations of growth stocks, changes in Fed policies, and US-China tensions.

As is often the case with financial markets, things changed gradually and then all at once. The tipping point was the post-Thanksgiving media coverage of the Omicron COVID variant. Since then, the VIX index has climbed to 30 (reflecting stock market volatility) while the 10 year Treasury rate dropped by 20 basis points overnight. The S&P 500 is moving up or down by 1% nearly every day and cryptocurrencies are demonstrating a high correlation to stocks. Fed Chairman Powell announced that the central bank would stop describing inflation as transitory, confirming what many market participants have been saying for months. A number of tech stocks have seen 50%+ drawdowns from their peak.

Fortunately, market volatility has had little effect on commercial real estate so far. Although some lenders are widening their spreads, the simultaneous drop in Treasury rates means that all-in rates are almost unchanged. However, given the Fed’s announcement that it will taper its bond-buying program, the stage is set for a gradual rise in interest rates. A key factor will be the pace of rate hikes and whether the dot plot is adjusted in the coming months. As the Fed ends its support for long-term Treasuries, yields will be more market-determined rather than Fed-determined.

Source: Google Finance

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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