FINfacts™ XXIV – No. 326 | July 13, 2022

MARKET RATES
Prime Rate 4.75%
1 Month LIBOR 1.97%
3 Month LIBOR 2.48%
5 Yr SOFR Swap 2.74%
10 Yr SOFR Swap 2.74%
5 Yr US Treasury 3.02%
10 Yr US Treasury 2.92%
30 Yr US Treasury 3.09%

RECENT TRANSACTIONS
$21,600,000 Construction Financing and $10,700,000 JV Equity for 142-Unit BTR Community; Savannah, GA

Rate: WSJ Prime + 50 with a 4.00% Floor
Term: 3 Years
Amortization: Interest Only
LTC: 65%
Fee: 1.00%
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners successfully advised on $21,600,000 in construction financing and $10,700,000 in JV Equity for the development of a 142-unit built-to-rent community in Savannah, GA. The Project features 142 detached single-family homes on a 66.15-acre site. The homes will feature three to four bedrooms with an average square footage of 1,500 across four distinct home styles.

GSP worked through several strategies with the Sponsor to source the 65% LTC, non-recourse construction debt financing, and a 90% joint-venture equity partner for the ground-up, build-to-rent community. With our marketing efforts highlighting the strength of the Savannah rental market, this project received interest from several groups for both debt and equity.

The Sponsor projects vertical development to be completed by the end of this year and lease-up to be finalized by Q1 2025.

Advisors

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

$10,000,000 Permanent Financing for Two Mixed Use Properties; Hollywood, CA

Rate: 5.25% Fixed
Term: 5 Years
Amortization: 3 Years IO, 27 Year Amortization Thereafter
LTV: 65%
Prepayment: 5, 4, 3, 1, 1%
Guaranty: 25%, Burning Off at Full Stabilization
Lender Fee: None

Transaction Description:

George Smith Partners successfully placed a $10,000,000 loan with a 5-year fixed interest rate for two mixed-use properties located in Hollywood, CA. The ground floor retail for both properties has short-term roll and is in need of renovation. The financing provides significant cash-out, which the Sponsor will use to improve the Properties and to re-tenant the buildings with new, long-term, market rate leases. GSP sourced a lender that was able to provide cash-out financing, limited recourse that burns off at full stabilization and lock the rate at application – critical in this current volatile interest rate environment.

Advisors

Nick Rogers
Vice President
Steve Bram
Managing Director & Principal
David R. Pascale, Jr.
Senior Vice President
Allison Higgins
Senior Vice President

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HOT MONEY
Non-Recourse Bridge Financing up to 85% LTV

George Smith Partners has identified a capital provider funding bridge loans up to 85% LTV. The loans are non-recourse and do not require a DCR test on the stabilized cash flow; allowing the lender to provide higher proceeds despite the current interest rate environment. Fixed rates start at 5.50% and floating rates start at SOFR + 5.00%. This capital provider lends nationwide on all major asset types including RV parks, self-storage, and student housing.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
“Hot” CPI Report Triggers Expectations of 100 Basis Point Fed Increase, Biggest Yield Curve Inversion Since 2000

Fed Chair Powell has made it clear in recent statements – the Fed’s inflation response will continue to be driven by “the data.” Today’s release of the June CPI report indicated stubborn price increases across a wide spectrum of goods and services. The “headline” number of 9.1% is the highest annual gain since November 1981, expectations were 8.8%. Core CPI (excluding food and energy) rose 5.9% (5.7% was expected) and the highly watched core monthly increase was 0.7% (0.5% was expected). Key categories were up sharply over the last month: food (1.0%), energy (7.5%), gasoline (11.2%), apparel (0.8%), household furnishings (0.4%). There was some speculation that non-food retail goods like clothing and appliances would see price decreases as many retailers indicated they are overstocked, so these increases are indicators of broad-based inflation pressure. The Fed is now expected to increase rates by 100 basis points at the July 27th meeting. Futures markets show a 78% probability tonight, yesterday it was about 10%. A full point increase would be the largest since Fed Chair Greenspan fought inflation in the summer of 1988. The increase would put the Fed Funds’ rate (and 30-Day SOFR) up to 2.50% by the end of the month. The September futures indicate a 70% chance of another 75 bps up to 3.25% after the September 21st Fed meeting (there is no August meeting).

The bond market sold off on the short end and rallied on the long end, inverting the yield curve farther than any time since 2000. The 10-Year started the day spiking up to about 3.07%, before dropping to 2.91%. The 2-Year jumped to 3.16%; a 25 bp inversion between long and short. The Fed is pushing to avoid inflation expectations to become entrenched and alter consumer, employee, and employer behavior. The fear is that workers who are expecting price increases to continue will negotiate higher wage increases. That will then put pressure on companies to raise prices in an “inflation feedback loop.” Markets seem “resigned” to the Fed’s harsh medicine likely triggering a recession. Note that the Atlanta Fed’s “GDP now” index indicates that a recession is happening now. It predicts a negative GDP for Q2 (the actual GDP estimate comes out on July 28). The hope is that inflation peaks soon and a short recession will be the perfect excuse to cut rates in early 2023. 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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