Saturday, August 4, 2018

George Smith Partners Secure $22.3 Million in Financing for Mixed-Use Development in Los Angeles Koreatown

Rendering of planned 51-unit workforce multifamily property, Koreatown district, Los Angeles, CA

LOS ANGELES, Calif. (August 1, 2018) – George Smith Partners, one of the nation’s leading commercial real estate capital advisors, has successfully secured $22.3 million in financing for the ground-up development of a 51-unit workforce multifamily property with 3,350 square feet of ground-floor retail in the Koreatown district of Los Angeles. 

Jonathan Lee
The property developer is a joint venture between Index Real Estate Investments, Inc. and Ketter Construction.
The financing was arranged by Jonathan Lee and Shahin Yazdi, both Principals and Managing Directors of George Smith Partners.
“Development in Koreatown is booming, presenting both advantages and challenges for property owners,” says Lee.  “As experienced developers, the Index Real Estate/Ketter Construction partnership recognizes the demand drivers in this neighborhood, including the opportunity to deliver a property that will attract consistent renter demand from people who are priced out of more expensive LA submarkets.”

Shahin Yazdi
The current challenge for owners and developers is high competition for financing, according to Yazdi.
A recent report from JLL cited 34 developments that are underway in Koreatown, contributing approximately 3,000 housing units, 474 hotel rooms and 380,000 square feet of retail in the years ahead.
“With so much construction in the market, borrowers must be prepared for creative solutions to compete for competitive debt,” says Yazdi. “In this case we were able to achieve financing for 89 percent of the project cost by bifurcating the loan structure. This strategy enabled us to achieve competitive terms among several finance sources.”
George Smith Partners structured the financing as an A/B execution, with a senior lender that was willing to advance up to 75 percent of cost subject to a 65 percent valuation upon stabilization. The team layered on a $5,000,000 mezzanine tranche and negotiated a partial deferral of the development fee to round out the capital stack.
Pablo Kupersmid
The $17.3 million senior loan was priced at LIBOR plus 375 and a half-point for the 36-month term. The $5 million tranche was priced at 12.25 percent annual.
The new development, located at 3057 W. Pico in Los Angeles, will be Index Real Estate and Ketter Construction’s second development in the Koreatown district in recent years. The partnership also developed a 40-unit for-sale condominium project on Harvard Blvd. and 11th Street.
At 3057 W. Pico, the partnership is focused on offering high-quality housing at rental rates that are reasonably affordable when compared to nearby LA submarkets, according to Pablo Kupersmid, Principal of Index Real Estate Investments, Inc.

“This is a prime location in a dense urban area with a tremendous need for housing,” says Kupersmid. “We are taking a thoughtful approach to ensure the development is well-aligned with the needs of the local market. For that reason, this will not be a luxury product. 
"Rather, the property will provide quality housing with on-site amenities, including ground-floor retail, an open community space and a fitness center, without over-amenitizing - making it a perfect fit for workers in the region.”
The property is in close proximity to a wide variety of employment, retail, entertainment, and transit options.
Construction is underway on the development, with an anticipated completion date in early 2020.

For more information, please contact:

Lindsay Mackay/Jenn Quader
(949) 955-7940

Financial Market Correction on Horizon, Real Estate Capital Institute Reports

John Oharenko

Chicago, IL -- The Real Estate Capital Institute finds the continued trend of flat rates carries over from late spring. The ten-year treasury note finally broke the three-percent barrier, the first time since the summer of 2011. 

Such a relatively flat yield curve indicates that a market correction is on the horizon; however, unabated economic growth proves otherwise.

Similarly, mortgage spreads are still tight with permanent debt pricing at
bargain levels, despite continued threats from the Fed of rising rates. Yet
spreads are expected to widen to more closely parallel rising corporate bond yields. 

Debt capital oversupply assures that varies lending sources will continue to
tighten spreads, while offering more competitive features as differentiators
from the large field of players. Below are various examples of how some
lenders approach markets for snagging deals:

Got apartments? Agencies are a good bet for both pricing and leverage,
funding loans at a record pace. Recent approvals to lend at higher leverage
levels should keep the momentum strong for multifamily lending (e.g., 10%
more leverage using 105% debt service coverage.)

Best pricing across most property types? LifeCo pricing persists within the
150 to 170 bps range, and can even dip towards the 100-bps range for very
conservative loans. This funding group definitely is the price leader, as
long as proceeds are not the main consideration.

Need loans of 70% LTV or more, and looking for a retail property lender?
Conduit pricing starts in excess of 200 bps for higher leverage, with about
50 bps premiums for even more dollars. Also, greater comfort with retail
properties as this sector shows signs of recovery from better integration of
bricks-and-mortar stores with internet marketing.

Want lots of flexibility? Debt Funds provide dollars with very creative
terms, but at a price. Creatively structured loans are offered in the
300-400 bps range. Such funds are focusing more on mezz debt, seeking
aggressive risk-adjusted returns. 

Mr. John Oharenko, director of The Real Estate Capital Institute(r),
suggests, "Mortgages still are priced very favorably at about 5% or less for
most types of deals." He adds, "Conservatively leveraged deals will be
offered in the lower to mid-4% range."
For more information, please contact:

John Oharenko
 Executive Director