FINfacts™ XXIV – No. 341 | October 26, 2022

MARKET RATES
Prime Rate 6.25%
1 Month LIBOR 3.60%
6 Month LIBOR 4.91%
5 Yr SOFR Swap 3.94%
10 Yr SOFR Swap 3.74%
5 Yr US Treasury 4.19%
10 Yr US Treasury 4.01%
30 Yr US Treasury 4.17%

RECENT TRANSACTIONS
$16,900,000 CMBS Financing for a Limited-Service Hotel; Central Coast, CA

Term: 10 Years
LTV: 65%
Rate: 10 YR SOFR Swaps + 355 Fixed
Guarantee: Non-Recourse with Standard Carveouts
Prepayment: Defeasance

Transaction Description:

George Smith Partners successfully placed a $16,900,000 cash-out CMBS loan to fund the refinancing of a limited-service hotel located in Central California. Backed by strong travel demand, the hotel was performing better than ever with additional revenue growth expected in future months. The Property was encumbered by a bridge loan nearing the end of its term and the Sponsor was looking to maximize proceeds to secure a cash-out refinance.

CMBS lender appetite toward hotels has picked up since the pandemic and the hotel received multiple bids from lenders. The 10-year fixed rate loan represents a 65% loan to the appraised value. Most CMBS lenders underwrote the loan to a 12% debt yield but due to the successful advising process of George Smith Partners, the chosen Lender was able to close using a 10.75% debt yield on T-12 income. Having experienced a dip in revenue through the COVID-19 pandemic, underwriting this asset required additional diligence to truly understand the stabilized cash flow. The hotel was experiencing a ramp-up in demand as drive-to markets have been extremely well-traveled since the pandemic. GSP and the Sponsor timed the refinance so that the hotel generated strong cash flow and secured an attractive rate during a rising rate environment.

Advisors

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

Permanent Financing for Acquisition of 12-Unit Multifamily Property; Los Angeles, CA

Rate: 4.34%
Term: 5 Years Fixed
Amortization: 30 Years
Prepayment Penalty: None
Reserve Account: None
Deposits Required: None

Transaction Description:

George Smith Partners arranged $2,250,000 in permanent financing for the acquisition of a stabilized 12-unit multifamily property in Los Angeles, California. The Sponsor acquired the Property as interest rates were soaring and as the environment was changing drastically with the Fed raising rates. GSP identified a Capital Provider who allowed an early rate lock, required no holdbacks of any kind, no deposits to be held at their branch, and provided an extremely flexible prepayment penalty structure. This allows the Sponsor plenty of options during the next 5 years at an aggressive rate.

Advisors

Reuven Risch
Director

Pascale's Portrait
PASCALE'S PERSPECTIVE
“Extreme” Yield Curve Inversion Signals Recessionary Expectations, Bond Yields Drop

The 2 Year Treasury and the 10 Year Treasury inverted in July and have remained “out of balance” to this day. That inversion is often seen as a harbinger of a recession. Today, the 3-Month Treasury is higher than the 10 Year Treasury – this has occurred only 7 times since 1967. Markets may be saying that the Fed has raised rates too fast, without allowing for enough lag time to gauge the effects (which can be felt for up to a year after any given rate hike). This week has seen earning disappointments from tech companies as companies pull back on advertising. The Case-Shiller index indicated home price gains are dropping at the fastest pace on record as mortgage payments average 75% higher than last year. The Fed’s demand destruction strategy is “working.” Recent quotes from Fed policy makers indicate some concern over raising rates too quickly over the next few months. Bonds have rallied – after hitting a multiyear high of 4.32% last Friday. The 10 Year is down to 4.00% as of tonight’s close. The latest hopes are quantified in the futures markets – a 75 basis point increase is nearly assured at next week’s Fed meeting (94% probability), but the December meeting futures show a 63% chance of a 50 basis point increase, and 37% at 75. This Friday’s PCE report looms large as the final major inflation data point before next week’s meeting. 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 Jessica Mania, at (310) 867-2974 or jmania@gspartners.com


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