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FINfacts™ XXIV – No. 303 | February 2, 2022
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| Prime Rate |
 3.25% |
| 1 Month LIBOR |
 0.11% |
| 6 Month LIBOR |
0.53% |
| 5 Yr Swap |
 1.66%
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| 10 Yr Swap |
1.81%
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| 5 Yr US Treasury |
1.59%
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| 10 Yr US Treasury |
1.77%
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| 30 Yr US Treasury |
2.09% |
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Transaction Description:
George Smith Partners arranged $42,500,000 in construction financing for the conversion of a 496-key hotel to a market rate multifamily complex in Southeast Colorado Springs. Spanning 17 acres, the Project features 496 units and boutique amenities: restaurant & bar, fitness center, indoor & outdoor swimming pool, sport court, convenience store, and 294 self-storage units that will be made available to the public. The financing capitalized the hotel acquisition, renovation, and targeted deferred maintenance.
Colorado Springs is an ultra-high-growth submarket and consistently ranked as one of the best places to live in the United States. Bolstered by substantial job diversification, there has been an influx of young professionals and military personnel due to the surrounding five military bases. The Sponsor identified the hotel as a prime candidate for the conversion, offering a low basis, and best-in-class amenities to create significant value and drive occupancy rates. GSP was able to identify a lender who not only understood the pent-up demand for affordable housing in the booming submarket, but also the Sponsor’s ability to execute on the intended business plan.
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Rate: Fixed 3.25% for 7yrs then floating at SOFR + 2.25%
Term: 30yrs
Amortization: 3-year IO followed by 30yr AM
LTC: 85%
LTV: 70%
Prepayment Penalty: 5,4,3,2,1%
Guaranty: Recourse
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Transaction Description:
George Smith Partners secured senior, permanent financing for a fully stabilized 54-unit, multifamily property in Los Angeles, CA. The recourse debt totaling $15,150,000 was utilized to take out the maturing construction loan and return equity to the Sponsorship. The loan was structured with a 7-year fixed period, with a 30-year term.
GSP selected a lender capable of providing cash-out, along with keeping the low rate guaranteed for over three months while the Property reached stabilization. The appraisal of the Property came in under the 70% loan-to-value threshold, granting the request for 3-years of interest-only payments added to the loan terms.
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Rate: Prime +1%, with a floor of 5%
Construction Term: 18 months + 6-month option to extend
Mini-perm Option: 5-year treasury + 2.25% with a 3.50% floor
LTC: 75%
Guaranty: Recourse
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Transaction Description:
George Smith Partners secured $4,600,000 of senior construction financing for the development of a 19-unit ground-up multifamily building in Los Angeles, California. The construction loan floats at a rate of Prime + 1%. The 75% loan-to-cost construction loan also comes with the option to convert to a 5-year mini-perm loan upon completion based on the 5-year Treasury plus a margin of 2.25%, with a 3.50% floor, eliminating any future financial risks. GSP sourced a lender that was able to move efficiently and most importantly accommodate the Borrower’s development timeline and experience.
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Rate Hike Cycle Expected To Begin In March
Fed Chairman Powell’s comments last week indicate the Fed is likely to stick to its plan of at least 3 rate hikes this year. Powell affirmed that the central bank’s primary concern is fighting inflation and the current market volatility will not cause the Fed to change course. The market expects more hikes than the Fed guidance, with several investment banks forecasting 5 or even up to 7 increases. There is still the possibility of an exogenous event such as a geopolitical conflict or another COVID wave that will cause the Fed to change course.
The story of the markets in 2022 continues to be one of volatility. After an exceptional 2021 in which the S&P 500 returned 26%, the market is down over 5% this year. There have been several large intraday moves in either direction. Of particular note was 1/24 on which the S&P fell nearly 4% before breaking even for the day. This has happened very few times in market history, the previous instances taking place in October 2008 and March 2020.
It is interesting to note that the current selloff in stocks has not affected the Treasury market so far. The 10-year Treasury has remained steady between 1.7% and 1.8% during January. Although risk assets have sold off, the capital is not flowing into Treasuries and causing yields to drop. It is more likely that the 10-year Treasury will resume increasing as the Fed begins to allow Treasuries to roll off its balance sheet and the rate hike cycle plays out. Rates for CRE loans are still near all-time lows but will rise in tandem with the rest of the debt market.
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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Constellation Place
10250 Constellation Blvd., Ste. 2700
Los Angeles, CA 90067
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© 1999 - 2024 George Smith Partners, Inc. DRE # 00822654 FINfacts is an ePublication of George Smith Partners, Inc. For Promotional Purposes Only. All Rights Reserved.
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