FINfacts™ XXIV – No. 346 | November 30, 2022

MARKET RATES
Prime Rate 7.00%
1 Month LIBOR 4.12%
6 Month LIBOR 5.20%
5 Yr SOFR Swap 3.73%
10 Yr SOFR Swap 3.45%
5 Yr US Treasury 3.83%
10 Yr US Treasury 3.69%
30 Yr US Treasury 5.81%

RECENT TRANSACTIONS
$27,020,000 Construction Financing for a 95% Preleased, Grocery-Anchored Retail Center; Inland Empire, CA

Loan Term: 36 Months
Interest Rate: SOFR + 3.45%
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners successfully placed $27,020,000 (83.5% LTC) of construction financing for the development of a 95%-preleased, grocery-anchored retail center in the Inland Empire. Pre-leased with credit tenants like Sprouts, Burlington, and Five Below, the remaining tenant mix included a diverse assortment of community-oriented tenants with strong overall synergy. With loan proceeds funding the acquisition of the 15-acre site, the Sponsor planned to develop ¾ of the site as the aforementioned retail development, holding on to 4-acres as a second phase. Furthermore, the Sponsor planned to sell a pad site to a future tenant at close of the land.

Although capital providers continued to be hesitant in financing retail construction, GSP was able to source competitive financing through the development’s strong sponsorship and significant preleasing. Most importantly, GSP found a lender comfortable with the sponsor’s proposed equity structure, which involved a minimal initial cash contribution followed by additional equity contributions from pad and land sales.


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HOT MONEY
Construction Financing Starting at 5.75%

George Smith Partners is working with a capital provider financing ground up construction with rates starting at 5.75%. With the ability to go up to $10,000,000 in proceeds, this Lender has non-recourse and interest only options with 2-, 3-, and 5-year terms. Lending in the Western states, with a focus on California, they have a strong appetite for multifamily, industrial and low-rise office.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Powell Remarks, PCE Report Feed “Inflation Has Peaked” Narrative

Today’s release of the October PCE report indicated that the key indicator, month-over-month core price increases, rose 0.2%. That’s in contrast to April (0.7%), June (0.6%), and the last 2 months at 0.5%. It’s just one month and not yet a trend, but 0.2% annualized is 2.4%. That’s “in the range” of the Fed’s 2.0% target inflation rate. Coming on the heels of yesterday’s sort of dovish comments from Fed Chair Powell, the 10-year Treasury rallied down to 3.54% this morning. It’s now almost 80 bps below the recent peak of 4.32% (October 21). One year ago today it was 1.33%. Markets are cheered by Powell’s comment that “it makes sense to moderate the pace of rate increases.” This is being interpreted as a likely 50 bps increase this month, followed by a couple more increases in the 25-50 bps range. He also cautioned that “we have a long way to go in restoring price stability,” mentioning that the terminal rate would have to be held for longer than previously assumed. Futures markets are now predicting a terminal rate of around 4.90% (which implies another 100 bps of increases). Powell drilled down on the core issue: tightness in the jobs market. The three categories of goods and services that make up the index are goods, housing, and services – with services being the largest. Good and housing prices are moderating while services costs climb.

Tightness in the job market: The Fed is watching the job openings per unemployed person ratio closely. It is presently at 1.7 to 1 (down from a high of 2 to 1 earlier). The Covid pandemic exacerbated this ratio. Powell pointed out that the “participation gap” has led to a shortfall of 3.5 million workers in the labor force. Covid related deaths, lingering long covid sickness, early retirements, and other factors probably account for 1.5 million of that total. Labor participation stats in tomorrow’s jobs report release will be closely watched as usual. Bottom line: The Fed can’t increase the workforce so it’s going to concentrate on decreasing job openings by tightening financial conditions. Powell seemed to be speaking to critics of his policy in Congress when he responded to a question: “We don’t think the world is going to be a better place if we take our time, and inflation becomes entrenched.” 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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