FINfacts™ XXIV – No. 313 | April 11, 2022

MARKET RATES
Prime Rate 3.50%
1 Month LIBOR 0.51%
6 Month LIBOR 1.48%
5 Yr Swap 2.85%
10 Yr Swap 2.84%
5 Yr US Treasury 2.78%
10 Yr US Treasury 2.78%
30 Yr US Treasury 2.81%

RECENT TRANSACTIONS
$47,000,000 Senior Construction Loan for a Mixed-Use Development; Azusa, CA

Rate: Floating rate (SOFR-based) with rate stepdown at TCO
Term: 36 Months + Two, 12-month Extensions
Stabilized Loan-To-Value: 70%
Loan-To-Cost: 85%
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners placed a $47,000,000 senior construction loan for the ground-up development of a mixed-use project in Azusa, CA. When complete, the 5-story project will consist of 127 apartment units and approximately 10,000 SF of 1st-floor commercial/retail/restaurant space. The Project is an integral component in the ongoing expansion of the City of Azusa’s Downtown district and is immediately adjacent to the Gold Line Station, which runs from Azusa Pacific University & Citrus College west to Downtown Los Angeles. This is the Sponsor’s second project in Azusa.

A lack of comparable projects within the submarket posed a challenge. GSP emphasized the supporting employment centers inside a ten-mile radius, including the two colleges and eighteen medical facilities. In addition, a detailed breakdown of the San Gabriel Valley (SGV) submarket helped showcase the presence of a proportionally higher share of younger households than statewide. Data depicting home values that had grown out of reach for those living in a three-mile radius helped the case for a rental project. Further support was provided by the SGV submarket experiencing minor economic impact during the last two years and during Covid.

GSP executed a full-time marketing campaign and identified the most economically beneficial capital stack scenario for the sponsorship with a stepdown in rate at Temporary Certificate of Occupancy (TCO).

Advisors

Jonathan Lee
Managing Director & President, AXCS Advisors
Shahin Yazdi
Managing Director & Chief Operating Officer, AXCS Capital
Miles Musalman
Senior Vice President
Matthew Kirisits
Vice President
Kyle Redmond
Vice President
Jessica Mania
Marketing and Business Development Associate

$15,100,000 Cash-Out Refinance of a 5-Property Multifamily Portfolio at 3.40% – 70% LTV; Los Angeles, CA

Rate: 3.40%
Term: 30 years term, fixed for first 5 years
LTV: 60%
DCR: 1.20

Transaction Description:

George Smith Partners arranged $15,100,000 in permanent financing for the refinance of a 5-property multifamily portfolio located in Los Angeles, CA. Using GSP’s vast network of relationships, we were able to source and quickly lock fixed rate financing in a market that is seeing rising interest rates. The Sponsor also wanted to pull cash out of their existing multifamily portfolio to use as equity towards purchasing new properties. The Sponsor had recently completed exterior and interior renovations including common area upgrades to all five properties. The recent improvements allowed the Sponsor to increase rents thus increasing the value of the Property. GSP was able to provide the Sponsor with a 30-year term, with the first 5 years being fixed at a rate of 3.40%. The loan represents 70% loan to value with a minimum 1.20 DSCR. The flexible stepdown prepayment structure is equal to 5,4,3,2,1. The cash-out loan allows the Sponsor to use more equity towards growing their multifamily portfolio. Thanks to GSP’s long-standing relationship with this bank lender, we were able to meet the Sponsors deadline and close this transaction within 35 days from signing the term sheet.

Advisors

Bryan Shaffer
Managing Director & Principal
Ruben Bohbot
Vice President

SPEAKERS CORNER

Antonio Hachem, Cornelius Baliukonis and Dana Light will be at the 2022 Retail Summit & Expo & the Denver Commercial Real Estate Outlook and Expo at the Aurora-Denver Conference Center on Wednesday, April 13th and Thursday, April 14th.

More information about the event can be found here: Colorado Retail Summit & Expo


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HOT MONEY
Non-Recourse Build For Rent Construction Financing

George Smith Partners is working with a national lender offering non-recourse financing solutions for experienced developers building new rental properties. With transactions from $3,000,000 – $50,000,000+, this lender will offer floating rate pricing and up to 75% LTC for construction loans and fixed rate pricing and 75% LTV for term loans.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Key Yield Curve Metric “Uninverts” As 10 year T Hits 3 year High at 2.79%

The 2 year/10 year Treasury yields are “back to normal”, but rates continue to rise.  Some technical aspects are pushing yields up: new auctions in 10 and 30 year Treasuries are set for this week and a huge debt sale by Amazon.

Treasuries:  Markets were prepared and had priced in a hawkish, tightening Federal Reserve.  Tightening was assumed to be a series of interest rate hikes up to the “Neutral Rate” of about 2.50%; while keeping the balance sheet steady with the intent of rolling off maturing securities in the coming year.  Recent Fed speeches and meeting minutes have significantly raised the bar on the level of tightening being planned.  A half point increase at the May 3-4 Fed meeting is now the default scenario (futures are at 79% probability).  Treasury yields are spiking as the market prices in hawkish new revelations from the Fed:

  1. Possible “overshooting” the neutral rate, ie. raising rates about 2.50% to about 3.50% putting the Fed Funds rate into “constraining” territory for the first time in decades
  2. “Quantitative Tightening”  (QT, the opposite of QE) – QT will involve shrinking the Fed’s balance sheet at a rate of $95 billion per month ($60 billion in Treasuries, $35 billion in MBS).

The last period balance sheet reduction (2017-2019) averaged about $30 billion/per month and was mostly “runoff” of maturing treasuries.  This round is expected to include outright sales of longer term treasuries starting this summer.  Why so sudden?  Maybe it’s “buyer’s remorse” or an attempt to “turn back the clock” as the Fed is being highly criticized for continuing to purchase bonds throughout 2021 and into March 2022.

Tomorrow’s CPI report is expected to indicate very high price increases as the effects of the Ukraine conflict are in the report’s scope.   Interesting news regarding the Amazon debt sale:  Amazon is pricing a 40 year fixed rate bond at 130 over Treasuries.  Will other corporations rush to sell bonds before yields spike further? Tomorrow’s March CPI report is expected to be very high as the effects of the Ukraine conflict exacerbated already escalating prices.  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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