FINfacts™ XXIV – No. 331 | August 17, 2022

MARKET RATES
Prime Rate 5.50%
1 Month LIBOR 2.38%
6 Month LIBOR 3.50%
5 Yr SOFR Swap 2.82%
10 Yr SOFR Swap 2.67%
5 Yr US Treasury 3.05%
10 Yr US Treasury 2.90%
30 Yr US Treasury 3.13%

INTRODUCTION


RECENT TRANSACTIONS
$9,000,000 Construction Financing for 28-Unit Apartment Building; Los Angeles, CA

Rate: Prime +1%, with a Floor Rate of 5.00%
Term: 18 Months with Two 6-Month Options to Extend
LTC: 75%
Stabilized LTV: 65%
Guaranty: Recourse
Mini-perm Option: 5-Year Treasury + 2.75% with a 3.95% Floor

Transaction Description:

George Smith Partners secured $9,000,000 of senior construction financing for the development of a 28-unit ground-up multifamily Building in Los Angeles, California. The Project will be a conventional 28-unit property with 4 stories, including 12 one-bedroom units and 16 two-bedroom units. The construction loan floats at a rate of Prime + 1%. The 75% loan-to-cost construction loan also comes with the option to convert to a 5-year mini-perm loan upon completion; based on the 5-Year Treasury plus a margin of 2.75%, with a 3.95% floor, eliminating any future financial risks. GSP sourced a Lender that was able to move efficiently and most importantly accommodate the Borrower’s development timeline and experience. 

Advisors

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

Refinance for a 2,738 SF Retail Building; Echo Park, CA

Rate: 7.75%
Term: 6 Months
LTV: 70%

Transaction Description:

George Smith Partners successfully advised on the refinance of a 2,738 SF high-street retail building located in Los Angeles, CA. The senior loan proceeds totaled $2,500,000 of non-recourse financing, which is approximately 70% loan-to-value. Due to the strategic advising of GSP, the Sponsor was able to obtain a fixed rate loan despite the building being 100% vacant.

The Sponsor achieved a fully executed lease from a cannabis use tenant however, the prior mortgage did not permit cannabis use. GSP identified a cannabis-friendly lender that could close in accordance with the Sponsor’s business plan. Additionally, the Property was encumbered by a loan that included neighboring parcels as collateral. The new loan allowed the Sponsor to release the property from the prior mortgage and capitalize on the newly signed lease.

Advisors

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

SPEAKERS CORNER


Pascale's Portrait
PASCALE'S PERSPECTIVE
Fed Minutes Avoid Forward Guidance

Yesterday’s release of Fed minutes from the July 27th policy meeting reiterated the central bank’s determination to “promote price stability.” Markets were looking for clues regarding the path of the Fed Funds rate over the course of the next few meetings. Whereas the Fed embraced “forward guidance” during the beginning of Fed Chair Powell’s term (circa 2018-2020). Yesterday’s Fed is increasingly data-dependent. The minutes indicate that Fed officials feel that hiking the fed funds rate last month to 2.25% – 2.50% puts the rate at the “neutral” level (neither accommodative nor restrictive). Many participants feel that a “restrictive” level will be appropriate which means more hikes to come (Hawkish).

Also in the minutes: “as the stance of monetary policy tightened further, it likely would become appropriate at some point to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments on economic activity and inflation” (Dovish). The futures market is now predicting a 66% chance of a 50 basis point hike at the September meeting. There is no meeting this month. The Fed also is concerned about its public image: “a significant risk…is that elevated inflation could become entrenched if the public began to question the Committee’s resolve to adjust the stance of policy sufficiently.” This speaks to consumer and employee behavior and expectations being a critical component of wage and price stability. Interestingly, yesterday’s derivatives markets predict that inflation will be approximately 3.3% over the next 12 months. Interestingly, the market prediction last August was also 3.3%. How did that turn out? The 10 Year Treasury has traded in a tight range this week between 2.77% and 2.90%, settling yesterday at 2.87%. 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, at (310) 867-2995 or taugust@gspartners.com


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