FINfacts™ XXIV – No. 301 | January 18, 2022

MARKET RATES
Prime Rate 3.25%
1 Month LIBOR 0.10%
6 Month LIBOR 0.39%
5 Yr Swap 1.74%
10 Yr Swap 1.93%
5 Yr US Treasury 1.65%
10 Yr US Treasury 1.87%
30 Yr US Treasury 2.19%

RECENT TRANSACTIONS
$129,000,000 Construction Financing for a Multifamily Asset; Downtown Los Angeles, CA

All Terms Confidential

Transaction Description:

George Smith Partners secured $129,000,000 in construction financing for a 280-unit mixed-use multifamily development featuring 25,000 SF of ground-floor retail/office space and best-in-class amenities. Located in the heart of the Cornfield-Arroyo Seco Specific Plan (CASP) area, the Property is adjacent to the high-traffic Los Angeles State Historic Park, USC+LAC Medical Center; the Project site is within a 5-minute walk from more than 34 upcoming bars, restaurants (Momofuku by David Chang), cafes and entertainment venues. The financing provided funding for future capital expenditures and related construction costs.

The top-tier Sponsorship group focused on minimizing their equity contribution through a high leverage debt facility to execute their business plan. GSP was able to identify non-recourse capital with strong local knowledge and confidence in the long-term fundamentals of the high-growth submarket. These efforts were aided by the site’s development potential, given the prime location and thousands of surrounding demand drivers.


$27,300,000 Non-Recourse Construction Financing for Multi-Tenant Spec Industrial Development; Mesa, AZ

Rate: L + 6.50% with 0.10% Floor
Term: 24 months + (1) 6-month extension
LTC: 80%
2% origination fee, 0% exit fee

Transaction Description:

George Smith Partners arranged $27,300,000 in non-recourse construction financing for the development of a 173,193 SF, Class-A, light industrial project in Mesa, AZ. The Project will consist of smaller unit sizes in 10 total buildings ranging in size from 2,500 to 15,000 SF.

Challenges:

This Project was built entirely to spec. Tenants signing smaller leases typically do not pre-lease space before a project breaks ground. Due to supply chain constraints and inflationary pressures, raw materials and labor costs increased significantly. While there have been many large box industrial projects developed in the market, there has been limited development of small bay product and therefore limited comparable lease and sales transactions. Most of the Sponsor team are foreign nationals whose assets lie outside of the United States.

Solution:

GSP successfully obtained several financing options and selected a lender who had flexible execution, a strong understanding of the growing demand for small bay industrial space and was comfortable with rising construction prices. GSP arranged a co-guarantor to subsidize the non-recourse carve-out guarantees.

Advisors

Scott Meredith
Senior Vice President
John Thrall
Vice President

$3,925,000 Non-Recourse 21-Unit Multifamily Acquisition Financing; Los Angeles, CA

Rate: 3.15%
Term: 10 years
Amortization: 3 years Interest Only followed by 30-year amortization
Prepayment Penalty: 3,2,1,0%
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners sourced a $3,925,000 loan for the acquisition of a 21-unit property in West Los Angeles. The loan provided 65% leverage and is fixed at a rate of 3.15% for 3 years. The Lender gave the Borrower full credit for newly signed leases and was able to underwrite to the most recent month’s income. Net operating income was underwritten at the actual note rate, which resulted in higher proceeds compared to other lenders. The Property had some deferred maintenance, but the Lender was willing to have the Borrowers complete it after closing. The 3-year declining prepay fit with the Borrower’s value-add business plan.

Advisors

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

Pascale's Portrait
PASCALE'S PERSPECTIVE
Treasury Yields Jump as Markets Price in a 50 Basis Point March Rate Hike

The 10 year Treasury yield spiked to 1.86% today as new assumptions for the Fed are being “priced in”. The 2 year Treasury (most sensitive to Fed moves) has jumped to a 2 year high of 1.00% (up 80 bps since September). The early January predictions of 3 or 4 rate hikes this year now seem “dovish” this week.

Major factors include continuing high CPI numbers combined with:

  • Predictions of extended supply chain disruptions resulting in shortages/higher prices for oil, raw materials, computer chips, consumer staples, etc; and
  • A very tight labor market with “sidelined” workers that will demand higher wages to return to work.

Markets are now pricing in a 0.50% rate hike in March (the first 0.50% rate hike since May 2000). Consumers, businesses and Congress are clamoring for action on inflation. It looks like the Fed will want to make a “whatever it takes” statement with a rare “double hike” in March (as soon as the monthly bond buying has ended). Fed governors are calling for as many as 5 rate increases in 2022. Also, the 10 year T is spiking on the “relative value trade” as the 10 year German Bund is climbing out of negative territory for the first time since May 2019. So the 10 year at 1.86% is now right where it was on 12/31/2019, the day of the first Covid alerts and before the unprecedented fiscal and monetary stimulus of the past two years. 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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