FINfacts™ XXIV – No. 310 | March 22, 2022

MARKET RATES
Prime Rate 3.50%
1 Month LIBOR 0.44%
6 Month LIBOR 1.24%
5 Yr Swap 2.46%
10 Yr Swap 2.47%
5 Yr US Treasury 2.40%
10 Yr US Treasury 2.38%
30 Yr US Treasury 2.63%

RECENT TRANSACTIONS
$30,139,000 Construction Financing for an Office-to-Hotel Conversion; Tucson, AZ

All Terms Confidential

Transaction Description:

George Smith Partners successfully arranged $30,139,000 in construction financing for the phased adaptive reuse of a landmark office tower into a 145-key upper-upscale lifestyle hotel with boutique-quality amenities. Located within a Qualified Opportunity Zone in the heart of Downtown Tucson, the Project is a focal point in the downtown skyline, offering unparalleled accessibility to numerous restaurants, bars, shops, and entertainment venues.

The financing capitalized renovation costs related to the redevelopment of the office tower; the Project also qualified for valuable tax benefits intended to spur new development in the surrounding area.
The Downtown Tucson market currently has only one upscale lifestyle hotel, while market growth has created a strong demand for upscale product within the hotel sector. Bolstered by local knowledge and industry expertise, the top-tier Sponsorship team recognized the gap within the market and identified the asset as a unique opportunity to create a transformative hotel in the city’s employment and social epicenter. GSP was able to identify an institutional-quality lender who not only understood the substantial value of the Project’s tax benefits in a high-growth market, but also the Sponsor’s ability to execute on the business plan.


$6,200,000 Non-Recourse Construction Loan for 27,300 SF, 100% Pre-leased Shopping Center; Moreno Valley, CA

Rate: 8.00%
Term: 18 months + two 6-month options
LTC: 90%
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners successfully arranged $6,200,000 in non-recourse construction financing for a 100% preleased, 27,300 SF grocery-anchored shopping center in Southern California. Positioned in a strong retail corridor with high traffic counts, the Sponsor assembled a stellar mix of tenants, two of which were on ground-leases, and the other two requiring build-to-suits. With highly experienced Sponsorship, the Project was significantly de-risked with signed leases and approvals for a tentative parcel map. As a result, GSP was able to source competitive financing with exceptionally high leverage that co-align with the Sponsor’s investment plan and market outlook.

Advisors

Gary E. Mozer
Managing Director & Principal
Lee Norman
Senior Vice President
Portrait Robert Horton
Senior Vice President
Tommy Adelson
Vice President

$4,400,000 Acquisition Financing Loan for 19-Unit, Multifamily Property; Los Angeles, CA

Rate: 3.15%
Term: 30 years term, fixed for first 5 years, resets every 5 years after for the term
LTV: 70%
DCR: 1.20

Transaction Description:

George Smith Partners arranged $4,400,000 in permanent financing for the acquisition of a stabilized 19-unit multifamily property located in Los Angeles, CA. GSP was simultaneously helping the Sponsor close on a few multifamily refinances within their portfolio to pull cash out and use as equity for the Subject property. Although the Property is currently 100% occupied, rents were below market because the Seller self-managed and the Property needs exterior and interior improvements. The Sponsor wanted to lock in a low rate to allow for additional cashflow to be used towards building upgrades. Despite being on a strict closing deadline, GSP was able to identify a bank lender who could close within 45 days. The loan represents 70% of the purchase price and was structured with the first 5 years being fixed at 3.15%, while resetting every 5 years for the rest of the 30-year term. The loan structure also allows for flexible prepayment with the first 3 years being equal to 1.75% and 1% thereafter. The prepayment flexibility will allow the Sponsor to cash-out refinance once they have implemented their value-add strategy. The renovation plan will improve the Property appearance and support the overall business plan of increasing market rents and value. The new capital allows the Sponsor to expand their multi-family portfolio.

Advisors

Bryan Shaffer
Managing Director & Principal
Ruben Bohbot
Vice President

Pascale's Portrait
PASCALE'S PERSPECTIVE
10 Year at 2.38%, Yield Curve Flattening After Powell Goes “Full Hawk” in Remarks

Powell’s Monday remarks shook up markets as he continued to channel his “inner Volcker” (80’s reference). He referenced the Fed’s dual mandate as he remarked that inflation is “much too high” and the labor market is “strong.” Translation: It’s our mandate to raise rates aggressively. He followed that up by indicating that raising rates more than 25 basis points at a “meeting or meetings, we will do so” Market Assumption: Look for 50 basis point increases in May and June. A full 1% increase in a 2 month period hasn’t been seen in about 30 years. He admitted that the Fed “widely underestimated” upward price pressures (remember “we believe that base effects from the pandemic shutdown are distorting inflation statistics and it will smooth out within 6 months”?). It’s also noteworthy that he did not rule out raising rates above the so called “neutral rate” for a period in order to cool off inflation. The neutral rate is considered to be the rate that would be neither stimulative nor restrictive, is now about 2.5% (note that it was 4.2% in 2012). The Fed funds rate was 2.50% during much of 2019 before plummeting to 0% in March 2020. The yield curve is flattening as the 3, 5, 7, and 10 year treasuries are bunched within 4 bps of each other. This may be signaling a prediction of slowing growth as the “soft landing” unicorn may be elusive. 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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