FINfacts™ XXIV – No. 39 | September 28, 2016

MARKET RATES
Prime Rate 3.50
1 Month LIBOR 0.52
6 Month LIBOR 1.24
5 Yr Swap 1.13
10 Yr Swap 1.40
5 Yr US Treasury 1.13
10 Yr US Treasury 1.57
30 Yr US Treasury 2.29

RECENT TRANSACTIONS
$19,500,000 Non-Recourse Bridge Financing of a 62,800 Square Foot Orange County Shopping Center

Rate: LIBOR + 5.25%; 5.75% at closing
Term: Three-years plus one (1) year ext
Amortization: Interest only
LTV: 70% As-Is, 65% As-Stable
Prepayment: 18-month spread maintenance
Non-Recourse
Lender Fee: 1.0%

George Smith Partners successfully placed $19,500,000 in non-recourse bridge debt to refinance and reposition an 80% occupied, 1980’s vintage Orange County shadow-anchored community retail center. Approximately $3,700,000 of loan proceeds will be used to complete a façade upgrade and convert 15,000 square feet of inferior elbow retail space into a food court with outdoor seating. The loan is sized to 70% of as-is value and 65% of as-stable value. Reserved funds will cover 100% of capital upgrades and our Sponsor will not pay interest until drawn. Priced at LIBOR plus 5.25%, there is no floor for the three year interest-only non-recourse loan.

Advisors

Nick Rogers
Vice President

$8,400,000 Non-Recourse Cash-Out Refinance Single-Tenant Owner-User Industrial Building

Rate: 4.69%
Term: 10 Years
Amortization: 30 Years
LTV: 60%
Debt Yield: 8%
Non-Recourse

Transaction Description:
George Smith Partners placed the $8,400,000 cash-out refinance of a 105,752 square foot owner-user warehouse & distribution industrial building in Valencia, California. The single tenant is a non-credit owner-user who will utilize a portion of the loan proceeds for reinvestment into a building and operations expansion. Fixed for ten years at 4.69%, the non-recourse loan amortizes over 30 years.

Challenge:
Our Sponsor requested a non-recourse cash-out execution for a non-credit single tenant; not an ideal structure in today’s capital market lending environment. The physical improvements included a recently added 10,000 square foot building that lacked permits and a certificate of occupancy. Underwritten value was required from this unpermitted addition in order to maintain loan proceeds.

Solution:
George Smith Partners identified an institutional capital source that underwrote the transaction as an investor property and not as an on-going business concern. The pocket to pocket lease was supported by the strong industrial market location and supplemented with a list of multiple tenants interested in assuming occupancy should the Subject become available for lease. George Smith Partners worked with the lender to structure around the permitting issue by posting a small “permitting” reserve and allocating six months post-closing to obtain the Certificate of Occupancy for the addition. All additional square footage was used in underwriting, resulting in a higher underwritten value and allowing for a $2,000,000 cash-out through this refinance.


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HOT MONEY
Horizontal v Vertical or an L-Strip?

The majority of the Investment Banks have already positioned themselves to be within Basel III compliance despite having almost three months until the regulations go into effect.  Risk retention impedance aside, the CMBS market has recovered from the Summer instability, is active and posting bankable applications.  Spreads are once again priced over SWAPs, currently trading 17 basis points below corresponding Treasuries.  At least four US Banks are holding their retention rather than laying the risk off to the B Piece Buyer, thus minimizing cost and delivering a higher expectation of close as applied for.

More Hot Money ›

Pascale's Portrait
PASCALE'S PERSPECTIVE
Bond Yields Stay Low

Today’s OPEC agreement sent oil prices surging. Oil is a critical component in consumer prices. Energy companies whose fortunes are tied to the price of oil make up a considerable portion of the corporate bond market. Low oil prices have contributed to potential defaults in the unrated bond market. But today’s agreement wasn’t enough to raise Treasury yields, the 10 year remains under 1.60%. German bank concerns, US election uncertainty and Fed Chair Yellen’s discussion of upcoming bank regulations and stress tests all contribute to the “risk off” trade. CMBS: The post Labor Day – pre regulation “window” has contributed to a glut of supply and some price widening. However, several originators are now pricing over the 10 year Swap, which is 1.41%, well below the corresponding Treasury. So a Swap rate below the Treasury is now part of the “new normal”, post Brexit world. So new loans pricing at 2.60%-2.70% over the Swap are still coming in at about 4.00%.

Stay Tuned.

David R. Pascale, Jr.

More Perspectives ›

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