FINfacts™ XXIV – No. 348 | December 14, 2022

MARKET RATES
Prime Rate 7.50%
1 Month LIBOR 4.32%
6 Month LIBOR 5.20%
5 Yr SOFR Swap 3.40%
10 Yr SOFR Swap 3.20%
5 Yr US Treasury 3.61%
10 Yr US Treasury 3.47%
30 Yr US Treasury 3.54%

RECENT TRANSACTIONS
Land Financing for the Redevelopment of SDSU Student Housing Property; San Diego, CA

Term: 24 Months with Two 6-Month Extension Options
Amortization: Full Term IO
LTV: 35%
Rate: 4.5% Fixed
Origination Fee: 100 bps
Extension Fee: 50 bps
Prepayment: No Prepayment Penalty
Guarantee: Non-Recourse

George Smith Partners secured a land loan for the acquisition of a 0.35 AC, 15,000 SF student housing property adjacent to San Diego State University. The proceeds represent 35% of the purchase price of the Property. The loan carries a 24-month term with two, 6-month extensions available. The loan is fixed at a rate of 4.5% annually and payments are made on an interest only basis for the entirety of the loan period.

The Sponsor identified the parcel inclusive of an existing 15,000 SF 66-bed student housing property as a potential redevelopment opportunity due to the vintage of the existing structure and the permitted use through the current zoning. Following the acquisition of the property, the Sponsor intends to demolish the existing building and construct a state-of-the-art 226-bed student housing facility. The approval for the Project is ministerial and by-right, which requires no environmental review or public hearings and is exempt from CEQA. The Sponsor intends to seek a building permit for the by-right development of upon successfully obtaining the appropriate approvals within an anticipated 3-to-4-month timeframe post acquisition.

Due to strategic advising of GSP, the extremely low leverage of the acquisition loan, and the deep track record of the Sponsorship, the client was able to obtain a non-recourse loan with a very attractive rate. GSP emphasized the massive undersupply of housing at the university along with the lack of entitlement risk in order to attract the best financing possible. GSP was also able to obtain a loan with zero prepayment penalty and no exit fee, allowing the Sponsor flexibility to complete the business plan.


Construction Multifamily Takeout Financing; Los Angeles, CA

Rate: 4.65%
Term: 5 Years Fixed
Amortization: N/A, Interest Only for all 5 Years
Prepayment Penalty: Stepdown; 3/3/2/1/1
Deposits Required: None

Transaction Description:

George Smith Partners arranged permanent financing for the refinance of a stabilized 12-unit multifamily property in Los Angeles, California. The Sponsor finished construction on the Property in the middle of the current rate hike cycle. GSP identified a Capital Provider who allowed an early rate lock before Certificate of Occupancy was issued. The Lender allowed the borrower to go into application with very little lease up, but with the understanding that the property would be stabilized by closing. Although the closing took slightly longer than the 60 day term of the rate lock, the Lender held the rate for no additional charge. The bank did not require deposits to be held at their branch except for the subject property’s operating account.

Advisors

Matthew Kirisits
Vice President

Pascale's Portrait
PASCALE'S PERSPECTIVE
Fed Slows Down with a 50 bp Rate Hike… Policymakers and Markets Diverge on Future Path

Today’s announcement of a 50 bp rate increase topped off a year of rate moves unseen in recent history. The Fed increased rates 7 times this year including 4 consecutive 75 bp increases. The increase to 4.25% – 4.50% puts it at the highest level since December 2007, when Fed Chair Bernanke cut rates during the financial crisis.

What’s next? Today’s dot plot of predictions from Fed officials shows a “terminal rate” of 5.1% (up from September’s estimate of 4.6%). So, that’s “how high?…what about “how long?” – the dot plot indicates no rate cuts for all of 2023, with 1.0% in cuts during 2024. Note that would put the rate in December 2024 right back to today’s rate. Futures market assumptions are more optimistic. They indicate a likely 25 bp increase in February and March 2023 with the longed for “Fed pivot” starting in the summer. It seems that the end of the tightening is within sight. However, the Fed will keep up the hawkish rhetoric until “the job is done” in Powell’s words. He keeps reiterating that “the historical record cautions strongly against prematurely loosening policy”; referencing Fed Chair Volker’s premature rate cuts in the early 1980s, only to have to hike rates again even higher than before. The 10 year Treasury is right at 3.50% with 30 Day Term SOFR at 4.32%. Regarding yesterday’s cooler than expected CPI report, it is significant to note that services costs remain high with job openings exceeding available workers. That issue still isn’t “solved.” 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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