FINfacts™ XXIV – No. 306 | February 23, 2022

MARKET RATES
Prime Rate 3.25%
1 Month LIBOR 0.18%
6 Month LIBOR 0.78%
5 Yr Swap 1.97%
10 Yr Swap 2.06%
5 Yr US Treasury 1.90%
10 Yr US Treasury 1.99%
30 Yr US Treasury 2.32%

RECENT TRANSACTIONS
$59,900,000 Non-Recourse Construction Loan, 180-Unit Apartment Building; Los Angeles, CA

Rate: 6.95% + SOFR
LTC: 81%
Term: 36 Months
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners successfully arranged $59,900,000 in construction financing for a 180-unit apartment building in an infill Los Angeles location. The Sponsors are capitalizing on the San Fernando Valley’s 3% vacancy rate and very little brand-new apartment construction. While the Sponsors have significant experience in entitlements and apartment operations, this is their first ground-up development Project. The Sponsors were seeking maximum leverage on a non-recourse basis. The Subject Property is across the street from an apartment project that came online while processing the loan. The rents being achieved were above the Sponsors proforma rents which allowed the Lender to underwrite higher rents and increase loan proceeds during the loan processing. The additional loan proceeds were able to cover the escalating construction costs and increase the leverage to 80% of total project cost.

Advisors

Steve Bram
Managing Director & Principal / GSP Co-Founder
Allison Higgins
Senior Vice President
David R. Pascale, Jr.
Senior Vice President
Nick Rogers
Vice President

$3,925,000 Non-Recourse Acquisition Loan For 21 Unit Multifamily Property; 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

Matthew Kirisits
Director

14 Day Quick Close Acquisition Capital of $1,450,000 for 6 Acre Plot of Land

Rate: 9.25%
Term: 24-month Bridge Loan plus a one 12-month extension option
LTC: 55%
Prepayment Penalty: None

Transaction Description:

George Smith Partners was engaged by the Sponsor to secure financing for six acres of raw land located in the Western States. The Sponsor plans on entitling the land to build out five, forty-unit multi-family buildings, with shared common areas in open air. The Sponsor also plans on building out a pad for a restaurant. Securing financing for unentitled raw land provided an exceptional challenge. Additionally, location, low loan amount, and lenders being more restricted due to COVID made it increasingly difficult to secure financing.

Thanks to GSP’s vast lender network and strong relationships, GSP was able to secure attractive financing for this Project. Despite the hurdles, GSP secured 55% LTC financing at 9.25% interest-only, with a 24-month term and a 12-month extension option. GSP’s ability to secure this financing in just 10 business days allowed the Sponsor to renegotiate the purchase price and get a hefty discount.
Today, most land lenders in the space are restricted to 40%-50% leverage. This high-leverage loan structure allows the Sponsor to start pre-development, including entitlements and pulling permits. The extension option gives flexibility to the Sponsor should they face delays in getting to entitlement due to COVID effects. There’s additional flexibility because there is no prepayment penalty. Thanks to our long-standing relationship with this debt fund, GSP was able to close this transaction in 14 days from receiving the request.


SPEAKERS CORNER

 

Please join us for the City of Hope / Building Hope event on Friday, February 25th at noon. Zack Streit, Senior VP at George Smith Partners will be moderating a conversation with Robin Potts, Co-Head of Real Estate Investments, Director of Acquisitions at Canyon Partners Real Estate.  The event is a private, outdoor, in-person lunch in Century City (exact venue TBD).

Register here: Building Hope Speaker Series featuring Robin Potts

$65 donation/per person benefiting City Of Hope


Pascale's Portrait
PASCALE'S PERSPECTIVE
“Imminent Attack” Warnings Weigh On Markets

Geopolitical tensions are high over a potential incursion/attack on Ukraine by Russian forces. A massive humanitarian cost is being predicted based on estimates of casualties and displaced refugees. Financial markets are on edge, stock prices are dropping while bond yields remain fairly steady. The immediate effect of an escalating conflict in Ukraine will be a spike in energy prices. Supply chains already under stress will suffer further disruption. These factors will further exacerbate and lengthen inflation worldwide. The Federal Reserve is now expected to raise rates steadily throughout 2022. There are 7 meetings remaining in 2022 (March, May, June, July, September, November, December). Markets are expecting a quarter point increase at each meeting. Expectations of a half point increase in March are ebbing due to the increased uncertainty in the Russia/Ukraine situation. The futures market indicates 70% chance of a quarter point and 30% chance of a half point. Seven rate increases would bring the Fed rate to 2.00%, close to the 2.25-2.75% predicted “neutral rate” that policymakers feel would be appropriate for “normal” economic conditions (which has not been reached in well over a decade) Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

More Perspectives ›

SPECIAL ANNOUNCEMENT

We are excited to announce that GSP Founding Partner Steve Bram and his wife Julie are executive producers of a film called BUTTER, which is being released in over 300 theaters nationwide this Friday (2/25). The film is a heartwarming teen drama/comedy that deals with the themes of anti-bullying, teen mental wellness, and suicide prevention. They were able to make this indie film by attracting like-minded individuals who are passionate about helping address America’s teen mental health crisis and the unprecedented suicide epidemic.

Please see the Butter Trailer and the R U Ok page.

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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