FINfacts™ XXIV – No. 311 | March 30, 2022

MARKET RATES
Prime Rate 3.50%
1 Month LIBOR 0.46%
6 Month LIBOR 1.38%
5 Yr Swap 2.51%
10 Yr Swap 2.43%
5 Yr US Treasury 2.43%
10 Yr US Treasury 2.34%
30 Yr US Treasury 2.48%

RECENT TRANSACTIONS
$102,000,000 Non-Recourse Bridge Financing for an Ultra-Luxury 37-Unit Multifamily Asset; West Hollywood, CA

All Terms Confidential

Transaction Description:

George Smith Partners successfully arranged $102,000,000 (approx. $2.75M/unit) in non-recourse, bridge financing for a 37-unit, ultra-luxury apartment building located in the heart of West Hollywood. The fully condo-mapped project features hotel-level service and amenities including daily breakfast, airport drop-off, wellness classes, cooking classes, wine tastings, entertainment lounge, private dining room & kitchen, screening room, fitness center, yoga studio and a leather-paneled bowling alley. The asset boasts some of the highest rental rates on the West Coast.

Located in one of Los Angeles’ most coveted retail and residential neighborhoods, this trophy asset caters to wealthy residents seeking an amenity-rich community with minimal maintenance and maximal convenience. The best-in-class Sponsor recognized the investment potential of an ultra-luxury product in a prized location—the revered “pumpkin patch” site in West Hollywood. In working with potential lenders for this financing, GSP was able to identify a capital provider who not only understood the as-is value and in-place cash flow of the operating multifamily asset, but also the potential future value as 37 individual high-end condos. The loan closed in 50 days from application.


$13,300,000 (total proceeds) Revolver Loan Placement for the Construction of a Pre-Sold 66-Unit Single Family Community for Rent; Montgomery, Texas

Rate: 8.00% Over Libor
Term: 18 Months
Amortization: Interest-Only
LTC: 80%
Guaranty: Non-Recourse

Transaction Description

George Smith Partners successfully placed a revolving loan with a maximum line of credit of $6,900,000 (80% LTC) and total projected debt proceeds of $13,300,000 for the construction of 66 single family homes for rent in Montgomery, Texas. The loan is a floating rate of LIBOR plus 800 bps with a floor of 25bps and has an 18-month term with two, 3-month extension options. The Sponsors found a partner to acquire the homes at Certificate of Occupancy with a portion of the deposit on the sale to be released to the Sponsors as additional equity to help acquire the land. GSP leveraged its extensive expertise in the single-family rental sector to source revolving debt options that minimized the equity upfront and allowed the Sponsors to take down the entire Project without the need for an equity investor. This is one of the first of many built-for-rent transactions for the local Houston sponsors who have a strong track record in homebuilding.

Advisors

Evan Kinne
Managing Director & President, AXCS Capital
Ed Steffelin
Managing Director & Chief Investment Officer, AXCS Investments
Miles Musalman
Senior Vice President
Portrait Blair Lewis
Vice President
Jordan Lipton
Vice President

Highly Leveraged, Quick Close Acquisition of $2,335,000 for 10-Unit Multifamily Property; West Adams – Los Angeles, CA

Blended Rate: 8.05%
Term: 12-months plus a one 6-month extension
Loan-to-purchase: 80%
Prepayment Penalty: None

Transaction Description

The Sponsor approached George Smith Partners for highly leveraged (80% Loan-to-Purchase), quick purchase financing. GSP secured this financing which allowed the Sponsor to purchase the 10-unit multi-family property well below the market value. Although the Property is currently 100% occupied, rents were below market because the Seller self-managed and the Property needs exterior and interior improvements. GSP arranged a $2,335,000 in non-recourse financing for the acquisition. The loan was structured with a first trust deed from a debt fund as well as a preferred equity B piece. There’s additional flexibility for the Sponsor because there is no prepayment penalty. This loan structure allows the Sponsor to implement their business plan of renovating units, increasing rents, and refinancing into a permanent loan within a few months. The non-recourse facility was priced at an interest-only fixed rate with a blended rate of 8.05% with a 12-month term plus a 6-month extension. Thanks to GSP’s long-standing relationship with this debt fund and preferred equity investor, we were able to close this transaction in less than 10 days from signing the term sheet.

Advisors

Bryan Shaffer
Managing Director & Principal
Ruben Bohbot
Vice President

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HOT MONEY
Forward Rate Lock Protection

George Smith Partners is working with a balance sheet lender offering low-cost, flexible financing solutions for acquisition, refinance or construction take-out. This lender offers the ability to lock up to 12 months at the application and a refundable deposit (subject to hedge loss) due upon rate lock for stabilized assets. The small balance program ($2M – $10M) and large balance program ($10M-$50M+) offers 3-10 years with balloon note structure and fixed, rate reset, hybrid and variable rates with no origination fee.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Bond Yields In “Multiple Inversions” But What Does It Mean?

Many of the pandemic era economic metrics are unprecedented and the recovery is no exception. Huge demand combined with supply shocks not seen in generations stoking inflation. The Fed’s aggressive rate hike stance is pushing short term Treasury yields up (1 month to 3 year terms), while investors are buying 5 – 30 year bonds, betting on slowing growth. The 3 year bond is at 2.49%, higher than the 5, 7, and 10 year bonds. The highly watched 2 and 10 year bond spreads inverted yesterday for the first time since September 2019 (and the 2 year and 30 year very briefly inverted).

Floating rate expectations are climbing: 30 day term SOFR sits at 0.31%, the forward curve indicates expectations of it hitting 2.37% by year end (8 x 0.25% Fed increases). The German 10 year Bund which was in negative territory at the beginning of this month is now at 0.66%, further eroding the “relative value” trade in the US Treasury. The inverted yield curve is often a predictor of a recession (average time from inversion to recession: about 18 months). Or,is this just a bet that the Fed increases will slow growth but not push us into recession? 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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