Selective CMBS Lenders Will Quote

TRANSACTION OF THE WEEK!!!

$4,060,000 (86.50% of Cost) Non-Recourse Construction Financing for No. Cal Industrial Property: The 82,000 s.f., one-story, warehouse is 100% pre-leased to a single user. The lender is requiring a completion guaranty but no repayment guaranty. The property is located in an emerging secondary market outside of Sacramento. Terms: (1) Rate: 6-month LIBOR + 3.25%; (2) Term/Lender Fee: 14 months at 1.0%, 6-month extension available at 0.5%; (3) Lender is offering a conversion to a permanent loan upon stabilization at par; (4) Lender will require a debt service guaranty for either 2 years or until a 1.20 DCR is achieved. (Gary E. Mozer, Peter Smyslowski)

CMBS Update Spreads Tighten Slightly: (1) Only one new standard conduit pool went to market in recent weeks, 10 yr. AAA’s priced at app. T + 160. The pool contained some large loans, which caused bond buyers to demand more yield than previous pools which priced app. T + 150; (2) With very little new product, the secondary market heated up with some significant tightening. Spreads for AAA 10-year bonds narrowed significantly to as low as T + 131; (3) Some bond buyers prefer seasoned product to new issues because they have a quantifiable performance history; (4) The optimism is cautious however as the trading was not "deep", meaning volume was less than normal; (5) CMBS spreads are tightening relative to LIBOR, corporates and SWAPS. Overall market conditions are settling after summer’s volatility; (6) Is there room for more tightening? Some street watchers feel there may not be much as the market settles back into the equilibrium of January - May 1999; (7) What does this mean for borrowers? Many originators tightened spreads for new loans this week 10-20 bps across the board… some have tightened even more on hotels (see story below). As we move into the 4^th quarter, lenders are looking to quote now on loans destined to be securitized in 1^st quarter 2000. Quote from major IB: "We want to come back from the holidays with a significant pipeline."; (8) What’s coming up? Approximately $6 billion in new offerings in early October. Stay tuned… (David R. Pascale, Jr.)

HOT MONEY! Selective CMBS Lenders Will Quote on Hotels: One of the major casualties of last year’s meltdown was conduit hotel financing. Bond buyers were avoiding pools with even minimal hotel content and were especially wary of limited service/extended stay properties. The concern was due to fears of overbuilding in the mid 90’s. Why are they comfortable now? Hotel construction financing has been virtually non-existent for the past two years and the existing supply has been performing extremely well. How is the CMBS Market Underwriting/Pricing? GSP spoke to two major originators with similar criteria: (1) Minimum 1.40 DCR based upon 4% management fee, 5% FFE, and actual franchise fee; (2) Max. LTV: 75%; (3) Term/Amort: 10/25; (4) Rate: 10 yr. T + 2.50-3.00% (full service) 10 yr. T + 2.75-3.25% (limited service); (4) Lender Fee: Par.

HOT MONEY! Mezzanine Financing Update - New Program with $1,000,000 Minimum: A further sign of the stabilization of the capital markets is the willingness by some CMBS originators to fund mezzanine tranches. This week, GSP met with the local representatives of a major investment bank now providing high leverage financing for certain transactions. The mezzanine piece is intended for cases where the lender funds a typical CMBS senior loan of 75-80% LTV, 10-year fixed rate. Their underwriting focus is on the DCR threshold and not LTV. Program Highlights: (1) Minimum Mezz Loan Amount: $1,000,000; (2) Minimum Combined DCR: 1.10; (3) Mezzanine Term/Amort: Deal specific, self-liquidating anywhere from 5-10 years, also 3 years interest only; (3) Pricing: Fixed rate, (min. 12% pay rate), lender is seeking an overall minimum return of 14%, via interest rate and fees. Lender will vary structure depending on deal specifics and borrower needs; (4) Prepayment: Typically closed for 18 months, open to prepayment thereafter with make-whole provision to achieve target yield; (5) Secured by partnership interest.

HOT MONEY!!! Portfolio Lender Funding Variable Rate Loans With Flexible Prepayment: This West Coast lender will provide up to 80% financing on apartment acquisitions, 75% on all other transactions (4 Basic Food Groups Only: Apartments, retail, industrial, office). The lender is targeting stabilized properties, but will consider reposition opportunities. The loan is prepayable at par after year 3, with earlier prepayment at nominal fees (see below). With attractive spreads over LIBOR, this is ideal for borrowers looking to stay flexible. Program Highlights: (1) Geographic: California, Oregon, Washington, Nevada, Arizona, New Mexico, Texas; (2) Loan Size: $2,000,000-$15,000,000; (3) Rate: 90-day LIBOR + 2.00-2.75%; (4) Term/Amort: 5/25 for most transactions, other terms are available, 30 year amort. OK for apartments; (5) Partial recourse required on most transactions, deal specific; (5) Lender Fee: 0.5%; (6) Prepayment Fees: Year 1-2.0%, year 2-1.0%, year 3-0.5%, prepayable thereafter at par.

SPEAKER’S CORNER

George Smith Will Address the 9^th Annual Bi-National (US/Mexico) Economic Summit Conference "Setting the Stage for the Region de Oro": Date: October 29, 1999; Time: 7:15 a.m. to 2:30 p.m.; Location: Marriott Resort & Marina – San Diego, CA. For more information, call (619) 336-2474.