FINfacts™ XXIV – No. 347 | December 7, 2022

MARKET RATES
Prime Rate 7.00%
1 Month LIBOR 4.22%
6 Month LIBOR 5.20%
5 Yr SOFR Swap 3.42%
10 Yr SOFR Swap 3.14%
5 Yr US Treasury 3.62%
10 Yr US Treasury 3.42%
30 Yr US Treasury 3.42%

RECENT TRANSACTIONS
$25,000,000 Bridge Financing for 200-Unit Multifamily Acquisition; Irving, Texas

Rate: 4.10% + 30-Day Average SOFR (4.88% floor rate)
Term: 3 Years, Two 12-Month Extensions
Amortization: Interest-Only (30 Year amortization during the extensions)
LTV: 74.1% As-Is
Prepayment: 18 Months Minimum Interest Period
Loan Fee: 1% Origination Fee, 0.50% Exit Fee
Guaranty: Non-Recourse

Transaction Description:

George Smith Partners successfully placed a $25,000,000 bridge loan for the acquisition and renovation of a 200-unit, 1970 vintage apartment community in Irving, Texas. GSP sourced a Lender that was able to maximize proceeds while providing future capital expenditure funding for the sponsor. The loan was sized to 74.1% of As-Is Value and includes future fundings for 100% of the capital improvements and unit renovations. The Sponsor plans on renovating approximately 75% of the units within the initial 3-year loan term.

The lender prices over 30-Day Average SOFR, as opposed to the more common 30-Day Term SOFR. The average SOFR is based on the preceding 30 days rather than the upcoming 30 days and is 60 bps lower in today’s rising rate environment.

Advisors

Steve Bram
Managing Director & Principal / GSP Co-Founder
David R. Pascale, Jr.
Senior Vice President
Allison Higgins
Senior Vice President
Nick Rogers
Vice President

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HOT MONEY
Fixed Rate Financing starting at T + 2.00%

George Smith Partners is working with a capital provider offering fixed rate financing up to $75,000,000 with rates starting at T + 2.00%. Funding up to 70% LTV, they lend on all major asset types, both stabilized and near-stabilization. This program is full term interest only and the lender underwrites to the IO rate. 5 – 30 year terms are available with flexible prepayment options across all primary, secondary, and some tertiary markets. This capital provider also has bridge financing starting at SOFR + 2.75 and construction proceeds up to $750,000,000 starting at SOFR + 3.75.

More Hot Money ›

Challenges Continue for Office Properties

Over the past 6 months, there has been a noticeable decline in CRE deal volume, a trend that is reflected in Q3 transaction data. Nationwide, deal volume fell to $172 billion in Q3, compared to $218 billion last year. The largest decline was in office properties, with central business district office particularly affected. Office transaction volume was down more than 50% year over year. Cap rates for office and retail have started to move up due to higher interest rates and tighter lending markets. According to a recent study from Real Capital Analytics, cap rates for offices hit 6.0% in the third quarter, and market factors imply a further increase to 7.4%. This would result in a 18% decline in office properties’ value. Much of this trend is driven by higher vacancy rates and fewer lease renewals. For example, in Los Angeles, office vacancy bottomed out at 9.5% in 2019 and has now increased to almost 14%. Per CoStar, “Vacancies are at a 25-year high, and sublease space continues to track at record levels.” On the other hand, some markets are remaining resilient. Miami’s vacancy rate is under 10%, new deliveries have been rapidly absorbed, and a large pipeline of new construction is underway.

For transaction volume to recover, two conditions are needed. The first is for the market to come to a consensus on the terminal rate Fed funds rate. Throughout the year, the terminal rate has increased with each successive Fed announcement. Once there is agreement on the endpoint, market participants can make more informed decisions about property values. Second, the current gap between buyers and sellers will have to close. Since capital markets have tightened up, property owners have fewer lending options. There is still capital available, but refinances might require a recourse guarantee or additional equity.

By Matt Kirisits, Vice President at George Smith Partners

 

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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