FINfacts™ XXIV – No. 307 | March 1, 2022

MARKET RATES
Prime Rate 3.25%
1 Month LIBOR 0.24%
6 Month LIBOR 0.78%
5 Yr Swap 1.67%
10 Yr Swap 1.80%
5 Yr US Treasury 1.58%
10 Yr US Treasury 1.72%
30 Yr US Treasury 2.11%

RECENT TRANSACTIONS
$45,000,000 Construction Loan and $10,200,000 Limited Partner Equity for the Development of a For-Sale Residential Project; Silicon Valley, CA (Phase 1)

LTC: 75%
Stabilized Loan-To-Value: 70%
Term: 36 Months
Amortization: Interest-Only
Guaranty: Non-recourse

Transaction Description:

George Smith Partners placed a $45,000,000 construction loan and advised on $10,200,000 of LP equity for the first phase of a for-sale residential project in Silicon Valley, California with a repeat sponsor. The Project will be built in two phases. This first phase will have 50 townhomes providing much needed workforce housing to the area. The Project will also have some affordable units for sale.

GSP executed an effective and in-depth marketing campaign to help the capital markets understand the opportunity appropriately while finding solutions to various challenges that arose during the entire process. GSP marketed and highlighted the Project’s strength, the phasing nature of the build schedule, the projected sales prices and the forecasted upward trajectory in both sales price growth and sales pace growth. GSP was able to source capital providers on the Project that were comfortable with both the depth and experience of the Sponsor as well as believe in the continued growth of the Bay Area.

Ultimately, the professionalism and expertise of GSP on the deal coupled with the proficiency and extensive experience of the Sponsor allowed for a successful close.

Advisors

Ed Steffelin
Managing Director, GSP; President, AXCS Investments
Evan Kinne
Managing Director, GSP; CEO, AXCS Capital
Jordan Lipton
Vice President

$6,650,000 Perm Financing for Single Family and Multifamily with ADU/JADU Portfolio; North Hollywood, CA

Rate: 4.05% Fixed for 10 years
Min DSCR: 1.15:1.0
Loan Fee: 1%
Term: 10 Years
Amortization: 30 years
Recourse: Recourse
Prepayment: Yield maintenance

Transaction Description:

George Smith Partners secured three separate loans totaling $6,650,000 for the permanent financing of a portfolio of three properties/15 units in North Hollywood, CA. The Properties were acquired-entitled and developed by the Sponsor to include a combination of multifamily, single-family-detached with ADUs and JADUs. The Properties are located within proximity to each other and were in various stages of lease-up and stabilization at the time of the financing.

The recourse loan refinanced both equity and construction debt with perm financing with a total term of 10 years. The three separate loans represent 70% loan to stabilized value with a minimum 1.15:1.0 DSCR. The loan allows for open prepayment with yield maintenance.

The Sponsor’s business plan provides for much needed housing and increased density developed under the AB-68 Land Use Act for Accessory Dwelling Units passed by Governor Newsom and the State of California in October 2019. GSP was able to secure a lender that was comfortable with the collateral which required varying ownership structures including a land trust as required for JADUs.


$5,100,000 Non-Recourse, Cash-Out Refinance Loan For 20-Unit Multifamily Property; Los Angeles, CA

Rate: Fixed at 3.15% for 3 years then floating at CMT + 2.75%
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 $5,100,000 loan for the refinance of a stabilized 20-unit property in West Los Angeles. The loan provided 65% leverage and is fixed at a rate of 3.15% for 3 years. The Borrower had achieved their value-add business plan and was able to get significant cash out from the refinance. Net operating income was underwritten at the actual note rate, which resulted in higher proceeds compared to other lenders. The rate of 3.15% was very competitive for a loan that provided full proceeds of 65% LTV. The declining prepay will allow the Borrower flexibility to sell or refinance again depending on market conditions.

Advisors

Matthew Kirisits
Director

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HOT MONEY
$1,000,000 – $5,000,000 Preferred Equity Checks, Up to 90% LTC

George Smith Partners identified an equity provider offering preferred equity for multifamily and commercial real estate investments in secondary and tertiary growth markets nationwide. This equity provider will provide $1,000,000 – $5,000,000 checks to established sponsors and up to 90% LTC. They can fund in two weeks or less.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Treasury Yields Fall, Spreads Widen, as Markets Weigh Global Risk, Inflation, Fed

The Ukraine conflict and subsequent sanctions are roiling financial markets. The exclusion of Russian banks from the SWIFT global payment system triggered a flight to quality as investors bought treasuries and sold off risk assets. The 10 year T is at 1.73%, down from 2.03% last week, pre-invasion. Markets are now betting that the US Federal Reserve’s rate to increase plans for 2022 may be slower than previously anticipated. Example – the probability of a half-point rate increase this month has almost vanished. A quarter point increase is fully “baked in”. Speaking of Fed and inflation, last week’s PCE core inflation index (the Fed’s preferred metric) jumped 5.2%, a new 38 year high. Today, oil prices (West Texas Intermediate) closed at $105 a barrel, the highest since August 2014. The coordinated release of 60 million barrels of oil from the US and other world powers today did not help prices (note: that is about a half day’s worth of global consumption). The SWIFT exclusion makes it difficult for Russian oil to be sold, not to mention Russia’s standing as an international pariah. Supply chain issues are also being exacerbated. Fed Chair Powell speaks to Congress tomorrow and will try to balance inflation hawkishness with sensitivity to market disruptions. Many lenders are cautiously quoting new loans but we are hearing that it’s “difficult to know how to price right now”. CMBS spreads have increased about 40 bps in the last few weeks (AAAs up from the 60s to the 100s over Swaps). CLO (floating rate) spreads were already gapping out early in the year due to the LIBOR-SOFR transition, but now have widened further. The question is, will this all “settle down” or escalate? 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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