FINfacts™ XXIV – No. 403 | February 1, 2024
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Prime Rate |
8.50 |
1 Month LIBOR |
5.44 |
3 Month LIBOR |
5.57 |
6 Month LIBOR |
5.59 |
5 Yr SOFR Swap |
3.56 |
10 Yr SOFR Swap |
3.51 |
5 Yr US Treasury |
3.80 |
10 Yr US Treasury |
3.86 |
30 Yr US Treasury |
4.26 |
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Loan Amount: $42,120,000
Loan-to-Cost: 75% LTC
Spread: 4.75%
Index: 1-Month SOFR
Guaranty: Non-Recourse
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Transaction Details:
George Smith Partners has successfully arranged a non-recourse stretch senior construction loan of $42,120,000 for the ground-up construction of a 188-unit build-for-rent community in Raleigh/Durham, NC. George Smith Partners, through their expertise in build-for-rent communities and strong relationships with a multitude of lenders was able to negotiate favorable terms for the sponsor including a sizable land lift. The sponsor self-performed most of the site improvements and partnered with a home builder to erect the townhomes on the finished lots in tranches of 15-20 per month. The loan was priced at a floating rate of SOFR plus 475bps with one 6-month extension option. When built, the project will provide the future occupants from the rapidly growing market of Durham a mix of three and four-bedroom townhomes with two-car garages, an amenity center, access to top school districts, and proximity to high income tech jobs.
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Rate: Prime + 0.25%
LTV: 60%
Term: 3 Years
Origination Fee: 0.50%
Exit Fee: None
Guaranty: Recourse
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Transaction Details:
George Smith Partners successfully arranged bridge financing for the lease-up of a medical office building near the brand-new Providence Cedar-Sinai Tarzana Medical Center which opened at the end of 2023. The building was originally traditional office. The Sponsor allowed leases to roll and spent $5mm on an extensive renovation and conversion to 100% medical office. Once the renovation was complete, the Sponsor received significant tenant interest. Now that the building is almost fully leased, the subject loan will allow the Sponsor to complete the tenant improvements and stabilize the property. The subject loan was competitively priced at P+0.25% and provides a mini-perm option once the property is stabilized.
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After the November/December rate rally that saw the 10-year Treasury drop from near 5.00% to 3.79%, 2024 started with a partial reversal as the 10-year spiked to 4.18% in mid-January. It seemed like markets had “gotten ahead of themselves” with the rally and some correction was in order. December’s PCE report showed strong consumer spending (up 0.7% in December), but the spending was not matched by income growth. Rising credit card balances and lower personal savings rates fueled the holiday splurge, implying it is ultimately unsustainable. Annual Core PCE showed a 2.9% increase, still above the Fed’s 2% target. The 3-month moving average is 1.5% annualized and the 6 month is 1.9%.
Yesterday’s Fed announcement left rates unchanged as expected, all the action is in the statement and Powell’s presser. The statement was simultaneously dovish (it removed language about the Fed’s willingness to keep raising rates) and tamping down expectations (no plans to cut rates with inflation running above the Fed’s target). The current data indicates that we might be there now, but the Fed is still haunted by the early 80s “whoops, we cut too soon and had to raise again” rollercoaster. So, Powell dutifully remarked that “rates are still too high” and that a March rate cut was not likely. Future markets adjusted and now indicate a 95% chance of a rate cut on May 1 (90 days from today but who is counting?). Powell indicated the Fed is “data dependent” and “meeting by meeting.” More semi dovish talk from Powell, “The committee intends to move carefully as we consider when to begin to dial back the restrictive stance that we have in place.”
This week’s data indicated that time is coming; higher jobless claims, higher worker productivity (employer wage dollars being stretched), lower ADP payroll growth, etc. These are signs of long awaited “labor slack” which is closely watched by the Fed. The 10-year Treasury has rallied from 4.13% to 3.85% this week. CMBS spreads are compressing as bond buyers return with fresh allocations and a bullish rate sentiment. All eyes will be on tomorrow’s January employment report. Will the “slack” continue? Stay tuned…
By David R. Pascale, Jr., Senior Vice President at George Smith Partners.
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If you have an inquiry regarding George Smith Partners’ commercial real estate financing, please contact your GSP representative or Matthew Kirisits, at (310) 867-2951 or mkirisits@gspartners.com
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