FINfacts™ XXIV – No. 320 | June 1, 2022

MARKET RATES
Prime Rate 4.00%
1 Month LIBOR 1.12%
6 Month LIBOR 2.11%
5 Yr SOFR Swap 2.60%
10 Yr SOFR Swap 2.64%
5 Yr US Treasury 2.92%
10 Yr US Treasury 2.92%
30 Yr US Treasury 3.07%

RECENT TRANSACTIONS
$15,100,000 Refinance of a Mixed-Use Office and Fitness Anchored Retail Property; Los Angeles, CA

Rate: SOFR + 2.25%
Term: 3 Years + Two, 1 Year Options
Amortization: 30 Years
Fee: 50 Basis Points
Prepayment: 2, 1, 0%
Hedge Protection: Cap Purchase
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners successfully placed the non-recourse rate and term refinance of a 112,000 square-foot, mixed-use office and fitness anchored retail center facing loan maturity. Although several tenants were mandated to close by State Regulators during COVID, Center occupancy was not significantly impacted. The sit-down restaurant remained open and adapted operations for take-out only. The restaurant has since expanded, leasing an additional suite, and now permanently offers take-out beyond their traditional dining room facilities.

The maturing loan, SWAPed at inception, has 90 days remaining on their existing SWAP contract. GSP successfully negotiated that contract through the first three months of the new loan, saving the Sponsor over $30,000 in SWAP breakage costs. Priced at SOFR plus 225, the replacement debt is a three-year term with two, 1-year options to extend, and amortized over 30 years. A SOFR cap will be purchased effective upon the existing SWAP expiration, offering a hedge to higher future interest rates. The cap will only be for the initial first two years of the loan and then extended annually to maintain a lower cap cost.

Advisors

David Stepanchak
Senior Vice President

Cash-Out Refinance with LifeCo for Unflagged Boutique Hotel; Tucson, AZ

Rate: 4.59% Fixed for 5 Years
Term: 15 Years (5+5+5)
Amortization: 27 Years
LTV: <40%
Guaranty: Partial Recourse

Transaction Description:

George Smith Partners secured permanent financing for an unflagged, 90-key, boutique art hotel in Tucson, AZ. The Sponsor acquired the Property in 2017, and completed a full renovation and rebrand in 2018, primarily with cash. The Hotel performed extremely well prior to the pandemic. While revenue and NOI declined, along with most hospitality assets during that time, the Property has since recovered to and exceeded pre-pandemic levels. Despite the Property being unflagged and located outside downtown Tucson, GSP was able to leverage its strong lender relationships to source CMBS and Life Insurance Company quotes. The Sponsor ultimately chose a LifeCo lender who offered a combination of low rate, longer amortization, prepayment flexibility, and potential to increase proceeds during the loan term.

Advisors

Antonio Hachem
Managing Director & Principal
John Choi
Vice President
Wendy Wang
Vice President
Cornelius Baliukonis
Assistant Vice President

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HOT MONEY
Strategic, Quick Close Financing up to 85% LTC

George Smith Partners has identified a capital provider funding up to 85% of cost on most asset types between $1,000,000 to $15,000,000. The Lender provides time-sensitive bridge financing and can close in as little as 7 days. With a strong appetite for self-storage, value-add, and distressed transactions, the Lender is funding floating-rate transactions in most states, nationwide. This capital provider is a balance sheet lender and has non-recourse options available.

More Hot Money ›

Does The Fed Put Still Exist?

One of the most prominent features of capital markets over the past several decades has been the “Fed put.” A put provides insurance against asset prices falling below a certain level. The idea is that the Fed will raise rates to combat inflation, but if there is a significant decline in the stock market, the bank will drop rates. Besides interest rate policy, the Fed has implemented quantitative easing since 2008. QE is the direct purchase of long-term Treasuries and other securities, which brings down long-term interest rates and provides a buyer of last resort. An example of the Fed put was in 2010, when the bank began a second round of quantitative easing while the market was still struggling with the effects of the recession.

Recent developments raise the question of whether the Fed put still exists in the current market. The S&P 500 is down 15% this year, the 10 yr Treasury has increased by nearly 1.50%, and the GDP print for Q1 was -1.4%. Many expect that GDP growth will be negative in Q2, meeting the technical definition of a recession. Yet, the Fed has stuck to its stated intention of raising rates until there is a significant decrease in inflation. The magnitude and pace of increases have only increased at successive Fed meetings. The minutes from the most recent meeting indicate that the Fed is willing to go further and faster and may keep rates above the “neutral” level of 2.5% for some time.

Additionally, the Fed has started to remove liquidity from the market by ending quantitative easing. Per CNBC, “Starting on Wednesday, the Fed will begin reducing its holdings of Treasury securities, agency debt, and agency mortgage-backed securities by a combined $47.5 billion per month for the first three months. After this, the total amount to be reduced goes up to $95 billion a month… The reduction will occur as maturing securities roll off the Fed’s portfolio and proceeds are no longer reinvested.”

The question now becomes whether the Fed will stick with these policies if they result in a recession, a rise in the unemployment rate, and a slowdown in the housing market. In the short term, it appears that the Fed will continue to hike rates, but this may change as the market evolves. By Matt KirisitsVice President at George Smith Partners

 

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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