FINfacts™ XXIV – No. 298 | December 15, 2021

MARKET RATES
Prime Rate 3.25%
1 Month LIBOR 0.11%
6 Month LIBOR 0.29%
5 Yr Swap 1.34%
10 Yr Swap 1.53%
5 Yr US Treasury 1.24%
10 Yr US Treasury 1.45%
30 Yr US Treasury 1.86%

INTRODUCTION

Happy Holidays and a Very Prosperous New Year!

The George Smith Partners Team


RECENT TRANSACTIONS
$27,000,000 Non-Recourse Financing with Cash Out for 360,000 SF Retail Center; Colorado Springs, CO

Rate: 9.0% Fixed, Interest Only for 6 Months
Term: 18 Months, with two 6-Month Extension Options
LTV: 65% (Plus CAPEX)
Origination: 1.75%
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners has secured $27,000,000 in non-recourse debt financing for a 360,000 SF retail center in Colorado Springs, CO. The Property features many popular national retail and restaurant chains and is shadow anchored by Lowe’s Home Improvement. Due to some pandemic related tenant credit issues the Property faced 68% occupancy levels for a brief period. However, through strategic releasing efforts, the Property has since been released to strong new tenants for over 90% of the net leasable area.

The loan was structured to provide fresh reserves for the Sponsor to pay remaining tenant improvement and leasing commissions for the newly tenanted spaces as well as to refinance the existing bridge loan, which had reached maturity. In addition, the Lender provided the Sponsor with additional cash-out proceeds to pay down debts on other Sponsor-owned properties.

Challenges:

The Sponsor originally requested long-term fixed rate debt with maximum cash out. However, due to the near-term maturity of the existing bridge loan and the non-stabilized NOI, another bridge loan was needed to allow the NOI to season for another year, prior to arranging permanent financing.

Solutions:

The GSP team was able to solve for these challenges by highlighting the increased leasing activity since the pandemic as well as the Sponsor’s forty-year history and familiarity with the Property. GSP identified a new bridge lender comfortable with the Property’s dominant position in the market, the recent leasing activity and future leasing potential. GSP worked creatively and strategically with the Lender to structure an 18-month loan with two extension options. This will allow the new tenants to take occupancy. In addition, the NOI will be able tore-stabilize which will position the Property to achieve permanent financing as an exit strategy to repay the new bridge loan.

Advisors

Gary M. Tenzer
Managing Director & Principal
Antonio Hachem
Managing Director & Principal
John Choi
Director
Wendy Wang
Vice President
Cornelius Baliukonis
Associate
Dasha Savchenko
Vice President

$13,500,000 Cash-Out Refinance of 132-Unit SRO Property; Los Angeles, CA

Rate: 3.875 % fixed for 7 years
Term: 7 Years
Min. DCSR: 1.25x
LTV: 75%
Prepayment: No prepayment penalty

Transaction Description:

George Smith Partners successfully placed $13,500,000 in cash-out permanent financing for a 132-unit single room occupancy (SRO) located just outside of Downtown Los Angeles. SROs are like apartment buildings expect some of the units have shared bathrooms, similar to a dorm. The Sponsor approached GSP to help assist with the refinance of the Property to take out their expensive lender, while receiving cash out.

Since the Property is unique, it was important that GSP identified a lender who understood SRO properties, while delivering competitive terms. At the time of the refinance, the Sponsor had just completed exterior and interior renovations, including common area upgrades. Utilizing its extensive relationships, GSP was able to provide the Sponsor with a 7-year term, with all 7 years being fixed at a low rate of 3.875%. The first 24 months are interest-only, before converting to 30-year amortization thereafter. There is additional flexibility within the loan structure because there is no prepayment penalty. With over $2 Million in cash out, the Sponsor still lowered their monthly debt service. The cash-out loan allows the Sponsor to continue to grow their multifamily portfolio. Thanks to GSP’s long-standing relationship with this Lender, we were able to meet the Sponsors deadline and close this transaction within 45 days.

Advisors

Bryan Shaffer
Managing Director & Principal
Ruben Bohbot
Vice President

Announcement

Gary M. Tenzer was elected to the position of Vice Chairman of the Brentwood Community Council. The Brentwood Community Council (“BCC”) is the broadest-based Brentwood community organization, representing approximately 36,000 stakeholders of the community, including homeowner associations, multi-family residential dwellers, business organizations, schools, religious groups, volunteer service groups, public safety, and environmental organizations. Gary has been a board member for the past two years.


Pascale's Portrait
PASCALE'S PERSPECTIVE
“Hawkish” Fed Pivot Provides Certainty, Markets Celebrate

When does a hawk look like a dove? For today, the answer is: when the hawk’s arrival has been well telegraphed and it’s talons aren’t as sharp as feared. Today’s Fed meeting and announcement marks a full pivot away from ultra accommodative policy to a tightening anti-inflation stance.

The headlines:

  • The Pace of the Fed’s Tapering of Bond Purchases Is Doubling.
  • Bond Buying is Now Scheduled to End in March 2022 (Not June). This means that interest rate hikes may begin in April. Speaking of hikes, the Fed’s “dot plot” now calls for 3 rate hikes in 2022 and another 3 in 2023 (bringing the cost of funds to about 1.6% from 0% as of today).

Powell spoke of the “dual mandate” regarding inflation and employment thresholds which need to be met in order to begin raising rates. The inflation part of the equation has been met. He indicated that “Rapid progress to maximum employment” is underway, giving more certainty to a rate increase in April 2022. More on inflation – the recent record CPI and PPI increases are further proof that “transitory” is no longer appropriate. Powell today said, “The risk of higher inflation becoming entrenched has increased”.

Stocks rallied on a “relief trade” as market volatility has been high since Powell’s November 30 Congressional testimony indicating that a pivot was imminent. Today’s statement and Powell’s remarks calmed markets, providing a level of certainty. Today is a case of, “sell the rumor, buy the news”. A Fed funds rate of 0.9% at year end 2022 is not being seen as a major impediment to economic growth and it gives “cover” to investors worried about asset bubbles. 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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