Volume XVI  |  No. 13  |  April 23, 2008   Letter to the Editor   Print PDF Forward to a Friend KEY RATE INDICES Prime Rate  5.25% 1 Month LIBOR  2.90% 5 Yr US Treasury  2.97% 5 Yr Swaps  3.80% 12-MAT  3.79% 3 Month LIBOR  2.92% 10 Yr US Treasury  3.75% 10 Yr Swaps  4.38% 11th Dist COFI  3.56% 6 Month LIBOR  3.04% 30 Yr US Treasury  4.52%     Transaction of the Week Transaction Description: $6,690,000 Non-Recourse Leasehold Acquisition Financing for a Tenant-In-Common (TIC) Borrower. GSP advised a TIC syndicator on the acquisition financing of a 213-room mid-scale flagged hotel in Arizona. Challenge: 1) Many lenders are shying away from financing hotels with lower quality brands. 2) There is limited liquidity for TIC financings. A TIC transaction often involves 20-30 different borrowers who are all exchanging into the same transaction simultaneously. Most balance sheet lenders are having a hard time with this structure and much of the TIC financing in recent years has been offered by conduit lenders, which are having a hard time closing transactions in light of the volatility in the credit markets. 3) There is even less liquidity for TIC hotel transactions. Hotels have more volatile cash flows than most other property types, and TIC transactions are typically very tight and require predictable cash flows. Additionally, hotels are considered as businesses and hence do not qualify as a like-kind exchange. Thus, a master lease structure is required, complicating the transaction even further. 4) The loan is secured by the leasehold improvements as the sponsor is flipping the ground at a substantial profit to a third party. Leasehold mortgages are considered riskier than those secured by fee-simple title since the ground lease is viewed as additional leverage. Furthermore, many lenders felt that the sponsor had negative equity in the transaction in light of the profit from the land flip. Solution: GSP pointed out the strengths of the transaction, such as the high quality and strong track record of the sponsor, the significant upside in the property which has been managed unprofessionally and currently commands below market rates, as well as the attractiveness of the property and its location in proximity to demand centers. The lender underwrote the transaction conservatively and priced it in accordance to the complex structure and uncertainty regarding its ability to sell the loan in this volatile market. Rate: 7.5% Term: 10 yrs Amort: 25 yrs LTV: 45% DCR: 1.86 Prepayment: Defeasance Non-recourse Buy Down: 14% Key Players: Steve Bram, Omer Ben-Zur, David R. Pascale, Jr. Hot Money HIGHLIGHTS Up to 90% Financing for Owner-User Purchases, Construction Projects or Purchases with Construction. Existing properties must have at least 51% occupancy; ground up construction projects must have 60% occupancy. Loans are assumable and transferrable. Property Types: owner-user, mixed use, special purpose, healthcare, hospitality. Underwriting based on projected income. Recourse to owners who own 20% or more. * Concurrent underwriting for all loans by the Bank & CDC/SBA for a quicker approval. * Prequalification within 24 to 48 hours after receipt of minimum financial package. * Appraisal valuation is based on sales comparison and not NOI. * 10, 15 or 20 year fixed rate terms. * 99% of all US businesses meet the SBA definition of a “small business.” * Loan fees can be added to loan amounts. * Tenant Improvements can be financed as part of the building purchase. * Can provide financing for non-profit organizations. Transaction Size: $1-20M Rate: Fixed or Floating Loan Term: 10-20 yrs Amort: 20-30 yrs Max LTV: 90% Min DCR: 1.10 Recourse Prepayment: Flexible Geography: Nationwide Interest Rate/CMBS Update Treasury yields are rising on inflationary indicators and the beginnings of a “flight from quality.” Some investors are leaving the safe haven of treasuries and starting to buy higher yield “credit based” bonds now that there is more confidence that a financial system collapse was averted last month. Credit spreads are narrowing slightly for agency debt, municipal bonds, some corporates, etc. Note that credit spreads are not back to “normal” only down after a period of extreme widening. Recent rallies in financial stocks indicate the market feels that the credit crunch is “more than half over” or “coming up from the bottom.”   Interesting news on LIBOR: the LIBOR rate is based upon a survey of banks. There is speculation that some banks are not reporting their actual costs of funds so as not to create panic by already jittery investors. So the rate may be artificially low. We are seeing several lenders flooring LIBOR when pricing new loans. Stay tuned… (David R. Pascale, Jr.) Speakers Corner April 23, 2008, Wednesday  11:30am – 1:00pm   Bi-monthly Investor Forum Luncheon: "The State of the Market"   Featuring: Eric H. Better, GSP Vice President Jeffrey C. Albee, CCIM, Vice President | Sperry Van Ness Jeffrey A. Gould, Senior Advisor | Sperry Van Ness   "The State of the San Fernando and Conejo Valley Commercial Markets"   21800 Oxnard Street Suite 320 (Third Floor Conference Room) Woodland Hills, CA   Please RSVP to Marijana Zoric at 818-593-6164 or marijana.zoric@svn.com   Seating is limited   Presented by Sperry Van Ness and the Corridor Investment Group   Next Luncheon: June  2008 (RSVP to or get updates from Marijana, info above)   *   *   *   May 8, 2008, Thursday 7:30am – 1:00pm  Sheraton Universal Hotel   2008 San Fernando Valley Economic Summit (click here to register)   Panel: “The Apartment Market in 2008: Supply and Demand after the Condo Slowdown”   Moderator: Steve Bram, GSP Principal/Senior Director Participants: --John Walsh, SVP/Investments, Marcus & Millichap --Eric Stucky, MAI, CBRE Appraisal --Cindy Gray, President, Moss Property Management   Hosted by: The Economic Alliance of the San Fernando Valley California State University, Northridge Come Grow With Us George Smith Partners is expanding its team of top-notch mortgage brokers – originators and assistants. We offer highly competitive compensation and an excellent environment in which to work, learn and be supported. GSP provides its employees with cutting edge market information, resources for identifying the best capital sources for each transaction, training opportunities and peer support whenever it is needed.   We invite you to consider a career with George Smith Partners. Please direct confidential inquiries to Stella Debibi, Director of Business Development and Recruitment, at (310) 557-8336, Ext. 103. Forward to a Friend ©2008 George Smith Partners, Inc. FINfacts is an ePublication of George Smith Partners, Inc. For Promotional Purposes Only. All Rights Reserved.