FINfacts™ XXIV – No. 316 | May 4, 2022

MARKET RATES
Prime Rate 3.50%
1 Month LIBOR 0.83%
6 Month LIBOR 1.82%
5 Yr SOFR Swap 2.84%
10 Yr SOFR Swap 2.76%
5 Yr US Treasury 2.90%
10 Yr US Treasury 2.92%
30 Yr US Treasury 3.03%

RECENT TRANSACTIONS
$4,875,000 Acquisition Financing for an 88% Occupied Neighborhood Strip Center; Ventura County, CA

Rate: 4.00%
Term: 5 years fixed
Amortization: 30 years
LTV: 65%
Prepayment Penalty: 5/4/3/0/0
Banking Relationship/Deposits Required: None
Guaranty: Recourse

Transaction Description:

George Smith Partners successfully arranged $4,875,000 in acquisition financing for a non-grocery anchored retail shopping center in Ventura County. The Subject Property took a minor hit with rent collections during the Covid-19 pandemic and had many month-to-month tenants. GSP was able to illustrate to the Capital Provider how the Subject Property has rebounded nicely since then and has only been increasing in cash flow. GSP identified a Capital Provider who was comfortable with the mom-and-pop tenants, required no holdbacks of any sort for the vacant units, required no deposits to be held at their branch and provided a flexible prepayment penalty structure.

Advisors

Reuven Risch
Vice President

$3,600,000 Acquisition Financing for 16-Unit Multifamily; West Hollywood, CA

Rate: 4.25% Fixed
Term: 2 Years, with 1-Year Extension Option
LTV: 55%
Amortization: Interest-Only
Prepayment: 1%, 0%
Guaranty: Non-Recourse

Transaction Description

George Smith Partners arranged $3,600,000 in acquisition financing for a 16-unit multifamily property in West Hollywood, CA. The Property came with five vacant units that were previously leased at well below market rents. The Sponsor, a repeat client, planned to renovate the vacant unit interiors and increase rents accordingly. GSP leveraged its network of relationships to source short-term, non-recourse, fixed rate financing with interest only payments with an early rate lock. However, the delayed appraisal report uncovered two units that were not legally permitted, which the lender excluded in its underwriting. GSP worked with the Lender, Appraiser and Sponsor on creative solutions to get as close to the original loan terms as possible. These negotiations required several extensions on the closing. Also, the rate lock eventually expired. Ultimately, GSP was able to get a $3,600,000 loan amount thanks in part to additional analysis and data provided to the Lender. GSP also leveraged its relationship with the Lender to secure a 4.25% fixed rate. While this was higher than the original locked rate, it was well below the current market rate.

Advisors

Antonio Hachem
Managing Director & Principal
John Choi
Vice President
Wendy Wang
Vice President
Cornelius Baliukonis
Assistant Vice President

SPEAKERS CORNER


KIRISITS’ CORNER

Rate Hike Cycle Speeds Up

Higher interest rates were widely expected this year, but the speed of the change has taken the market by surprise. The Fed has continually revised guidance in one direction – greater rate hikes than previously anticipated. This morning, the Fed funds rate was increased by 50 basis points. A 75 point increase at the next meeting was on the table, until Powell played down that idea. Still, the Fed has repeatedly said that fighting inflation is the top priority and the economy is strong enough to handle further increases.

As a result of the higher interest rate environment, some deals are becoming more challenging. For several perm multifamily loans that we have sized up over the past 2 weeks, the new interest rate is higher than the old, and proceeds are less than the in-place loan amount. For floating rate loans, the index (typically SOFR) is currently about 80 basis points and will increase in lockstep with the Fed funds rate. Bridge loans also require the purchase of a cap, which is currently very expensive due to market volatility. Deals are still moving forward, but it is important to find a lender that views the current market as an opportunity to win business. The important things to watch over the next several months are:

• Whether the Fed will stick with the rate hike cycle even if the economy has another quarter of negative GDP growth;
• Transactional activity, which may begin to slow down;
• Cap rates, which could finally start to increase after declining for 10 years.

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 Todd August, Chief Operating Officer at (310) 867-2995 or taugust@gspartners.com


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