FINfacts™ XXIV – No. 332 | August 24, 2022

MARKET RATES
Prime Rate 5.50%
1 Month LIBOR 2.44%
6 Month LIBOR 3.56%
5 Yr SOFR Swap 3.00%
10 Yr SOFR Swap 2.90%
5 Yr US Treasury 3.24%
10 Yr US Treasury 2.90%
30 Yr US Treasury 3.32%

INTRODUCTION


RECENT TRANSACTIONS
$35,000,000 Cash-Out Refinance of Newly Built 161-Unit Multifamily Property; Boise, ID

Rate: 4.40% Fixed for 7 Years
Interest Only: 3 Years
Term: 7 Years with Optional 7 Year Extension
Amortization: 3 Years Interest Only followed by 27 Year Amortization
Prepayment Penalty: No Prepay
LTV: 60%
DCR: 1.20x

Transaction Description:

George Smith Partners secured $35,000,000 in proceeds for the permanent refinance of a newly built 161-unit multifamily property in downtown Boise, ID. The Property has been achieving strong leasing velocity but was only 30% occupied when GSP began discussing the transaction with capital sources. Although the original loan request was structured with a forward rate lock and a future funding holdback, GSP was able to source a lender that funded the full proceeds at close.

Some notable challenges were encountered when marketing the deal. Most perm lenders declined to bid because the Property was still in lease-up. Several other lenders would not loan in Boise, although there has been an uptick in institutional capital shifting their focus to Boise. Additional quotes were in the range of $30,000,000-$32,000,000 with a holdback, which was short of the Borrower’s desired leverage.

GSP was able to source a lender that provided superior proceeds, rate, and structure. The Lender held the rate of 4.40% despite large fluctuations in rates while the loan was in application, with no rate lock deposit. The loan has no prepay, which will allow the Borrower to refinance as rents continue to season. The fully funded proceeds provided a considerable amount of cash out to the Borrower over their initial construction loan.

Advisors

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

Cash-Out Refinance for a Recently Renovated 10-Unit Multifamily Property; San Diego, CA

Rate: 3.65% Fixed
LTV: 75%
Min DSCR: 1.25x
Term: 7 Years
Amortization: 30 Years
Prepayment: 5, 4, 3, 2, 1%
Guaranty: Recourse
Lender Fee: 25bps

Transaction Description:

George Smith Partners successfully arranged $3,100,000 for the cash-out refinance of a recently renovated 10-unit property in the Pacific Beach area of San Diego, CA. GSP was able to find a lender to quote the permanent loan despite the fact that the Property was not yet leased/stabilized. Furthermore, GSP was able to get the Lender to rate lock the low fixed rate for 90 days. The minimum cash required on the property is 10% and the minimum required occupancy at closing is 90%. The loan went under application on April 6, 2022, and closed within 90 days. The financing took longer than expected because of the Lender underwriting and a title issue at the last minute with a mechanics lien. However, due to GSP’s strong relationship with the Lender, we convinced them to honor and extend the rate lock.

Advisors

Alina Mardesich
Senior Director

SPEAKERS CORNER


Pascale's Portrait
PASCALE'S PERSPECTIVE
Treasury Yields Rise, Stock Markets Drop as Markets Focus on Jackson Hole

The 10-Year Treasury is up to 3.10%, rising 32 basis points in the last 10 days. Markets are concerned that Friday’s speech by Fed Chair Powell will lay out a more hawkish path than markets expected earlier this month. He is expected to say that a recession will not stop the fight against inflation. The usual assumption is that the Fed will react to a slowing economy by swiftly lowering rates. This is known as the famous “Fed put.” The fear is that Powell may remove that put this Friday. The futures market is now predicting a 60% chance of a 75 basis point increase at the September 21st meeting. Remember, markets have whipsawed back and forth between predicting 50 basis points and 75 basis points multiple times in the last month. The Fed’s recent increases are hammering rate-sensitive sectors, such as housing. The National Board of Realtors said “We are in a housing recession,” as July saw the biggest monthly decline in prices since 2011.  Tightening conditions are also hitting employers, both local and corporate. Large companies, like Oracle, Walmart, Apple, and Ford, have announced layoffs.

According to the latest PwC survey of US executives and board members, 52% of companies are instituting hiring freezes. Weekly jobless claims rose to an 8 month high this week. The Fed has made it clear that they are abandoning the long-standing “dual mandate” of full employment and price stability (sometimes referred to as the “2 and 4” rule – targeting a 2% inflation rate and a 4% unemployment rate). They now realize that the inflation-curbing “demand shock” that is being implemented must include a cooler job market in order to calm price pressures. Higher unemployment will be seen as “collateral damage” in the pursuit of wage and price stability. Yet, some sectors of the job market are still “hot” with job shortages. Prices continue to rise (albeit at a slower pace). September will see the Fed increase rates into restrictive territory above the “neutral rate” it’s at today (2.50-2.75%).  Now the focus is “what is the terminal rate?” i.e., the peak rate. Powell may address that this week. The futures markets are pricing the peak at about 4.00% – 4.25%, occurring in the second quarter of 2023. The 2 Year Treasury (most sensitive to anticipated Fed increases) is at 3.39%, a 10 week high. This Friday is action-packed with the release of the July PCE index (the Fed’s preferred inflation gauge). The data will be intensely parsed for (hopeful) signs that inflation has peaked and is slowing. After that early morning release, the Powell speech. 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


WWW.GSPARTNERS.COM

Constellation Place
10250 Constellation Blvd., Ste. 2700
Los Angeles, CA 90067
Office 310.557.8336
Fax 310.557.1276
Email finfacts@finfacts.net
© 1999 - 2022 George Smith Partners, Inc. DRE # 00822654 FINfacts is an ePublication of George Smith Partners, Inc. For Promotional Purposes Only. All Rights Reserved.
Hi, just a reminder that you're receiving this email because you have expressed an interest in George Smith Partners. Don't forget to add finfacts@gspartners.com to your address book so we'll be sure to land in your inbox!