| Volume VIII, No 34 |
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September 10, 1999 |
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| KEY RATE INDICES |
| Prime Rate |
8.25% |
| 11th District |
4.500% |
| 3 Mo. T’s (YTM) |
4.73%
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| 6 Mo. T’s (YTM) |
5.09% |
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| 5 Yr. U.S. T’s |
5.77% |
| 7 Yr. US T’s |
5.84% |
| 10 Yr. US T’s |
5.90% |
| 30 Yr. US T’s |
6.04% |
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| LIBOR - 1 mo. |
5.38% |
| LIBOR - 3 mo. |
5.50% |
| LIBOR - 6 mo. |
5.94% |
| LIBOR - 1 yr. |
6.04% |
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TRANSACTION OF THE WEEK!
Single Family Financing: $5,677,480 Initial Funding Consisting of a Construction Revolving Credit Facility and a Blanket Loan On 53 Finished 2 Acre Lots for Sierra Colony Ranch (Agua Dulce Valley North of Santa Clarita): The sequence of financings for this project by GSP is an example of providing financing alternatives for a borrower who was prepared to give up 50% ownership in order to develop a well conceived project. The Project: Sierra Colony is a 56 lot subdivision being developed by Werbco Construction (Roger Werbel). The development consists of 56 fully improved 2-acre lots in the semi-rural Agua Dulce Valley, approx. 14 miles north of the heart of Santa Clarita, Valencia and Newhall. This is an equestrian area with home sites typically 5 acres and larger. Land Acquisition: The finished lots were acquired from a bank as an REO (at what today would be considered a bargain price) more than 4 years ago when the Southern California housing market was just beginning to turn around. Step I - 1998 Financing: Werbco approached GSP in late 1997 to find a joint venture partner now that the housing market justified going forward. Instead, GSP arranged financing to construct 3 model homes; payoff Werbco’s original acquisition loan; a reserve for interest, property taxes and Mello Roos; and initial sales and marketing. This facility enabled Werbco to retain 100% ownership without dilution. Step II - GSP 1999 Financing: Because of redesign and permitting delays, the project timetable was set back by 6 months or longer. During the same period, sales prices in the area had escalated by 10% or more. However, the lender had a policy change and asked to be paid off. A regional bank with a recently established home building operation in Southern California was approached. Their commitment is to provide a combination of 96% of cost financing for the vertical construction on top and a land loan on the finished lots at 66% of market value (discounted for the development period and the Mello Roos contribution. The 4% shortfall to cost was financed by the bank as a credit facility. Financing for the finished models was separately placed. Phase I (10 homes) are under construction with 6 pre-sales with closings scheduled before year end. Finished Lot Loan: (1) Amount: $3,054,480 ($58,740/lot) 66% of discounted lot value; (2) Pricing: Prime + 2.00%, interest only; (3) Term: 18 months with two 6-month extensions, ¾ of 1% for each extension; (4) Release Fees: 119% of loan amount/lot; (5) Lender Fees: 2.00%. Phase 1 (10 Units) Construction Loan: (1) Loan Amount: $2,623,500 ($262,350/unit) or 96% loan-to-cost/75% loan-to-value; (2) Pricing: Prime + 1.25%, interest only; (3) Term: 12 months from recording of 1st draw; (4) Release Fees: Par; (5) Lender Fee: 1.25%. (Postscript: GSP is now placing a private capital 2nd mortgage to payoff the bank credit facility and establish significant liquidity reserves for Werbco). (George A. Smith, Lee T. Norman)
$4,650,000 For 200-Unit Student Apartment Complex With Highly Unusual Structure: This transaction is one of the most interesting arranged by GSP. The property was built in 1970 and consists of 80 one-bedroom and 120 two-bedroom units in 20 separate one and two story buildings located around the complex’s extensive greenbelt and running creek. Amenities include: Clubhouse, pool, jacuzzi, tennis court, microwaves and some in-unit washer/dryers. Student services include shared computer terminals and shuttle bus service to the university. Visiting faculty occupy 17 of the units on a weekly or monthly rental basis. Occupancy during the school year is 98% and 70% during the summertime. Structure: Our borrower sold the property to a non-profit student housing corp. in 1995 with an installment sale note for 100% of the price. The seller continues to operate the property for the non-profit owner. We arranged a loan for our borrower secured by the apartment complex he does not own. The loan was secured by a pledge of the installment sale contract and a deed of trust on the apartment complex owned by the non-profit entity. Terms: (1) Loan Amount: 10-year T + 2.75%; (2) Term/Amort: 10/30; (3) LTV: 75%; (4) DCR: 1.30; (5) Non-recourse; (6) Lender Fee: ½%. (Steve Bram, Brad Black)
Interest Rate Update: (1) Today’s Producer’s Price Index report initially indicated a very inflationary 0.5% rise in prices for goods at the wholesale level last month. However, excluding the volatile food and energy components, the index actually went down 0.1%. This led to a bond market rally, driving the 10 year yield down to 5.89% today; (2) Between $30 and $50 billion of high-grade corporate bond issues are expected this month as companies rush to refinance before the end of the 3rd Quarter. Why? Y2K wariness is creating a fear of issuance during the 4th Quarter; (3) Speaking of Y2K, was yesterday (9/9/99) a rehearsal for 1/1/2000? Should capital markets be relieved that no computer problems arose? The experts are divided, with most saying that Y2K is more complex than 9/9/99. Stay tuned….
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