FINfacts™ XXIV – No. 300 | January 12, 2022

MARKET RATES
Prime Rate 3.25%
1 Month LIBOR 0.11%
6 Month LIBOR 0.39%
5 Yr Swap 1.58%
10 Yr Swap 1.78%
5 Yr US Treasury 1.50%
10 Yr US Treasury 1.74%
30 Yr US Treasury 2.09%

RECENT TRANSACTIONS
$55,500,000 Debt and JV Equity Financing for a Ground-Up Single-Family Build-to-Rent Development; Tucson, AZ

All Terms Confidential

Transaction Description:

George Smith Partners successfully secured a combined $55,500,000 in non-recourse debt and JV equity financing for the development of a ground-up, single-family, build-to-rent community in Tucson, AZ. Spanning 17.1 acres, the Project features 225 units across 168 stand-alone residential buildings and is part of a multi-phase master planned community (expected to span approximately 4,800 acres). The financing allowed for the acquisition of the development site and an anticipated groundbreaking in Q1 2022.

The Sponsor, a best-in-class homebuilder based in the Southwest, identified the site given its strategic proximity to Tucson’s fast-growing tech corridor. Build-to-rent communities have gained significant traction during a time where vacant rental units are being absorbed in less than 15 days in the Tucson submarket. The Sponsorship team recognized the substantial value behind the grand vision of the master planned community, supported by local knowledge and industry expertise in BTR developments. GSP was able to identify a non-recourse construction lender who not only understood the rapidly growing demand for rental units in a high-growth submarket, but also the Sponsor’s ability to execute on the business plan. GSP was also able to identify a joint venture equity partner that is actively targeting new investments in the BTR space nationwide.

Advisors

Malcolm Davies
Principal/Managing Director
Zachary Streit
Senior Vice President
Portrait Drew Sandler
Vice President
Alexander Rossinsky
Senior Vice President
Aiden Moran
Vice President
Brandon Asherian
Assistant Vice President
Ben Tracy
Analyst

$30,875,000 Construction Financing (65% LTC) for Assisted Living and Memory Care Facility; Southern California

Interest Rate: Prime Rate + 0.50%
Term: 18-Month Construction Loan with 6 Month Extension Option (0.25% Extension Fee)
Converts to 24-Month Bridge Loan During Stabilization at No Additional Fee
LTC: 65%
Amortization: Interest-Only
Lender Origination Fee: 0.75%
Guaranty: Recourse
Prepayment Penalty: None

Transaction Description:

George Smith Partners arranged financing for the construction of a Class-A Assisted Living Facility in Southern California. The Facility was designed similarly to a 4-star hotel property with luxury interior design and a top tier culinary program. Amenities include: gourmet exhibition kitchen and dining area, wellness center, full service spa, hair salon, landscaped outdoor space, private dog park and dog services. The Sponsors have made a tremendous effort to offer a one-of-a-kind experience, with residents being able to tend their own vegetable gardens, attend wellness classes and more. The Facility will also be able to accommodate residents who require memory care.

This is the sponsor’s first Assisted Living project. GSP was able to structure a strategic partnership to boost the experience profile of the Sponsor. This was essential for the capital provider to get comfortable with the project.

The financing structure provides flexibility to the Sponsor; after an initial 18-month construction term, the Sponsor can extend the construction loan for 6 months. After construction, the loan converts to a 24-month bridge loan during lease up/stabilization for a total loan term of up to 4 years.

Advisors

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

$6,225,000 Construction-to-Perm Multifamily Financing; Los Angeles, CA

Rate: 3.6% Fixed 7-years
Term: 10 years
Amortization: Interest-Only Years 1-2 then 30-year amortization
Extensions: One 6-Month Option
Guaranty: Recourse
Prepayment: 2%,2%,1%,1%
Loan Fee: 1%

 

Transaction Description:

George Smith Partners successfully placed construction-to-perm financing of $6,250,000 for the development of a 19-unit multifamily community in West Los Angeles, CA. The 4-story building will provide 1, 2 and 3-bedroom units in a supply-constrained submarket. The recourse loan provides for two-years of interest-only financing with a 6-month extension that converts to a perm loan with a combined term of 10 years. The starting rate is fixed for 7 years then amortizing. The loan represents 60% of stabilized value and 70% of cost and allows for open prepayment based on a prepayment fee of 2%,2%,1%,1% in years 1 to 4. The Project will be Type-V construction consisting of 4-stories, a rear 750 SF community courtyard, partial ground level and partial subterranean parking. Unit mix includes studio, one and two-bedroom units including two low-income units. All units include covered patios however non-studio units include larger than average outdoor living terraces that range from 130 to 193 SF. Community amenities include a rear courtyard with firepit lounge and BBQ grill. The units average 654 SF in size. The Project represents the Client’s second multifamily construction project. GSP was able to assist in bringing in a qualified general contractor and get the Lender comfortable with the Borrower’s ability to execute despite their limited development track record.

Advisors

Alina Mardesich
Senior Vice President

Pascale's Portrait
PASCALE'S PERSPECTIVE
Treasuries Stable After Huge CPI Jump, Fed Stands Ready to Battle Inflation

Consumer prices rose 7.0% for 2021 according to the December CPI report released early this morning (core prices rose 5.5%). That is the highest rate in 40 years, all the way back to the Volker era. Fed Chair Powell has expressed concern that inflation may become “entrenched.” Via speeches, interviews, and Fed minutes released, the Fed committee members have laid out a path for 2022 and beyond. The December unemployment report at 3.9% indicated that there is a “labor shortage” according to Fed officials. This is very significant as it means that both the inflation and employment “test thresholds” have been met (the so called “dual mandate”).

The 10 year T barely moved today as the big CPI numbers are not expected to change policy assumptions that are “priced in”. The 10 year closed out 2021 at 1.51% before a big spike last week, sending the yield as high as 1.81% on Wednesday. This spike was attributable to markets being surprised by the release of Fed minutes indicating that balance sheet runoff, aka QT (Quantitative Tightening) may occur this year. This was a surprise to markets. The Fed had already telegraphed the first two stages of policy tightening: tapering bond purchases (set to end two months from now) and raising the Fed Funds rate. The general assumption was that the “runoff” of the Fed’s balance sheet would not occur until 2023. The knowledge that the Fed may be a net seller of MBS and Treasuries this year was a jolt. The act of selling bonds removes liquidity from the system and will put additional upward pressure on rates. The consensus amongst major bank economists and the future markets is the following: Bond purchases end in March, then 3 or 4 rate hikes this year (March, June, September, December). That will bring the Fed Funds rate to 1.00-1.25%. This is halfway to the Fed’s “terminal rate target” which is now 2.50%. Balance sheet run off may start as soon as September, but definitely by December. 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 Todd August, Chief Operating Officer at (310) 867-2995 or taugust@gspartners.com


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