FINfacts™ XXIV – No. 325 | July 6, 2022

MARKET RATES
Prime Rate 4.75%
1 Month LIBOR 1.79%
3 Month LIBOR 2.34%
5 Yr SOFR Swap 2.65%
10 Yr SOFR Swap 2.68%
5 Yr US Treasury 2.97%
10 Yr US Treasury 2.93%
30 Yr US Treasury 3.11%

RECENT TRANSACTIONS
$65,410,000 Acquisition Bridge Financing for a 232-Unit Multifamily Property; San Bernardino, CA

Rate: Floating at SOFR + 3.20% with a 0.35% SOFR Floor
Term: 3 Years, Two 12-Month Extensions
LTV: 77% Initial / 65% Stabilized
LTC: 75%
Debt Yield: 4.5% In / 6.0% Out
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners secured $65,410,000 in proceeds for the acquisition of a 232-unit multifamily property in San Bernardino County. The bridge loan is structured as $63,020,000 at close and $2,390,000 in future funding. The fully-funded proceeds represent 75% LTC. The loan floats at a rate of 30-Day SOFR + 3.20% with a 0.35% floor on SOFR.

GSP discussed the transaction with over 40 different capital providers and received a wide range of feedback. Many lenders declined due to the Property being constructed in the 1970s. Other lenders provided quotes but were limited to a maximum of 70% LTC ($60,800,000). Several quotes had pricing of SOFR + 4.0%.

GSP was able to source a lender that provided 75% LTC with pricing of SOFR + 3.20%, which is well below market. The Lender underwrote to an exit debt yield of only 6.0%, resulting in maximum proceeds. There was no required interest reserve or any type of cash management during the initial loan term. The spread of 3.20% over SOFR was maintained despite many other lenders widening their spreads while the loan was in app. The loan closed with no changes to the original term sheet.

Another challenge facing floating rate bridge loans is the requirement to purchase a cap. Until several months ago, the cost of a cap was negligible. However, the expense has become exorbitant due to the current volatility in interest rates. GSP was able to lower the up-front cap cost by reducing the period of the cap from 3 years down to 2 and increasing the rate at which the cap is triggered (strike price).

Advisors

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

CO-GP Joint Venture for a 207-Unit Multifamily Ground-Up Construction Project; Denver, CO

Terms Confidential 

Transaction Description:

George Smith Partners successfully advised our client to create a $2,520,000 Co-General Partner Joint Venture for a 207-unit multifamily ground-up, modular construction project in Denver, Colorado. The relationship created by GSP combines an investment team with a strong financial institutional backing with a sponsorship team of well-established development experts, into a general partnership team taking on a project in one of the fastest-growing markets in the country.

The Denver metropolitan area is expected to add roughly 216,700 new residents over the next five years, fueled by the expansions of the Denver International Airport and Fitzsimons Medical Campus. The Project is expected to fulfill an underserved workforce demographic by offering an affordable yet high-quality option. The Project will feature a rooftop deck with BBQ grills, outdoor games, playgrounds, sports courts, picnic areas, a dog run, gym, state-of-the-art security systems, bike parking, package storage, and a mail center with full-time onsite management and maintenance. The Project will be constructed modularly, thereby saving on costs and time. Modular projects can be developed in half the time as traditional construction, with approximately 60% – 90% of construction performed inside a factory while site work is simultaneously completed.

The investment was paired with a bridge loan to close on the land, complete the working drawings and complete all the pre-development work. The Project is estimated to break ground in Q1 of 2023. To close, GSP will assist in obtaining a construction loan and LP Equity.

Advisors

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

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HOT MONEY
High Leverage Portfolio Bridge Financing

George Smith Partners is currently placing high leverage, non-recourse bridge financing through a national portfolio lender. Funding value-add transactions from $2,000,000 to $30,000,000, the Capital Provider offers a specialized program through flexible loan structures with the ability to lower cap requirements to 2 years. Floating rate pricing is priced over 30-Day Average SOFR, starting at SOFR + 400. The Lender has a particularly strong appetite for multifamily in high-growth markets in Texas, Florida, Georgia, Ohio, and Kentucky.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Markets Rally on Fed Minutes as Bond Yields Rise, June Jobs Report Looms

Today’s release of the Fed meeting minutes for June indicated that there is an agreement for another 50 – 75 basis point increase this month (after June’s 75 basis point increase). The officials also indicated that an “even more restrictive stance could be appropriate if elevated inflation…persists.” Another 75 basis point increase would put the Fed Funds rate at 2.25% -2.50%, right at the Fed’s “neutral” rate. So, further increases after July would put it officially in “restrictive” territory. Another takeaway from today is the Fed feels the battle is shifting to one of “messaging”. Expectations of future inflation are becoming prevalent for the first time in decades. Fed officials worry that this expectation can result in more entrenched inflation. The notes also show that Fed officials believe that their constant messaging on their willingness to tame price increases is critical in reassuring consumers. The bright side? Officials note that by raising rates quickly today, they will have more flexibility later to pause or slow down in the fourth quarter and early next year. This Friday’s release of the June employment report will be closely watched – especially the hourly earnings increase and participation rate. 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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