FINfacts™ XXIV – No. 335 | September 14, 2022

MARKET RATES
Prime Rate 5.50%
1 Month LIBOR 2.82%
3 Month LIBOR 3.83%
5 Yr SOFR Swap 3.41%
10 Yr SOFR Swap 3.21%
5 Yr US Treasury 3.61%
10 Yr US Treasury 3.41%
30 Yr US Treasury 3.47%

RECENT TRANSACTIONS
$14,700,000 Refinance of 380,000 SF Office-Retail Property; Los Angeles, CA

Rate: 5.4% Fixed
Term: 7 Years
Interest-Only: 7 Years
Amortization: 25 Years
Prepayment Penalty: 4, 3, 2, 1, 1, 1, 0%
LTV: 21%
DCR: 1.20x
Guaranty: Recourse

Transaction Description:

George Smith Partners secured a $15,400,000 loan commitment for the refinance of a 381,754 square-foot, “Curacao” office and retail building located on the Olympic Boulevard business corridor: one-half mile west of L.A. Live and The Staples Center. To reduce excess proceeds from the refinance, the Sponsor elected to reduce the proceeds to fund only $14,700,000 of the committed amount.

The building had been previously encumbered by a 10-year CMBS loan arranged by GSP. During the past year’s volatile interest rate environment, GSP worked closely with the Sponsor and Lender to provide a loan commitment with a five-month forward rate lock. The goal was to eliminate the Sponsor’s rate risk and enable the pre-payment of the CMBS loan, without paying defeasance, in the “open window” four months prior to its maturity. The 7-year loan was forward rate locked at a 5.04% fixed rate. Without the forward rate lock, the pricing would have been 75 – 100 bps higher.

Several challenges were encountered when discussing the transaction with capital providers. While the property was over 93% occupied, 43% of the space was occupied by both office and retail affiliates of the Sponsor. The retail comprised 23% of the building’s gross leasable area and its location on the ground floor and basement levels made it a challenge for some capital providers concerned about owner/user and retail tenant concentration. However, by highlighting the long-term ownership, unique business strategy, and strong sponsorship, GSP was able to source a lender that was both comfortable and eager to be a part of the refinancing.

Advisors

Gary M. Tenzer
Managing Director & Principal
Dasha Savchenko
Vice President

$14,400,000 Land Acquisition Financing Arrangement for a Future Build-for-Rent Project; Austin, TX

LTC: 50%
Index: PRIME
Spread: 1.25% (Floor of 6.00%)
Term: 12 Months
Extension: One 6-Month
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners arranged $14,400,000 of non-recourse land acquisition financing in Austin, TX. The land will eventually be home to 368 Build-for-Rent homes. GSP was able to negotiate accretive terms for the Sponsor and their Limited Partner within a two-month timeframe from marketing to closing. Once the project becomes stabilized, it will enrich the surrounding Austin area.

Advisors

Ed Steffelin
Managing Director & Chief Investment Officer, AXCS Investments
Evan Kinne
Managing Director & President, AXCS Capital
Jordan Lipton
Vice President

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HOT MONEY
5 Year CMBS Financing Starting at SOFR Swap + 275

George Smith Partners has identified a CMBS lender sourcing loans for an $800M pool made up of only 5-year term loans. Pricing for the 5 Year financing begins at Swap +275 for 50-60% LTV.  This is 50 – 75 basis points lower than typical 5-year pricing. This capital provider can also structure the 5th year to be open to prepay for a low spread premium. This program is ideal for borrowers looking for a non-recourse fixed rate option with the ability to refinance or sell in 4-5 years with no prepayment penalty.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Hot CPI Report Stokes Fears of “Entrenched” Inflation

Yesterday’s CPI report was expected to show moderating price increases led by falling energy prices. Instead, the 0.6% monthly increase in core prices took markets by surprise, with stock markets dropping dramatically, erasing recent rallies – which were largely based on softening inflation hopes. Price increases are broad-based – shelter costs, health care, restaurants, and travel are all experiencing high demand from a consumer base that has experienced a 6.7% increase in wages over the past year (that figure is the highest in 40 years). The narrative is changing: falling gas prices, improving supply chains, and lower shipping costs were expected to lead to lower prices. That’s not happening as relentless consumer demand keeps driving prices up. This is hardening expectations that the Fed will have to increase rates higher and longer to accomplish its desire to stifle demand. This was the last major piece of data before next week’s Fed meeting. The futures market is now pricing a 25% chance of a 100 basis point increase in the Fed Funds rate at next week’s meeting. The 10-Year Treasury spiked from 3.29% to as high as 3.46% yesterday, closing at 3.41% today. Piling on: A possible Railroad strike could massively disrupt supply chains as negotiations drag on towards a Friday deadline. 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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