| Volume VIII, No 29 |
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August 6, 1999 |
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| KEY RATE INDICES |
| Prime Rate |
9.00% |
| 11th District |
4.504% |
| 3 Mo. T’s (YTM) |
4.80%
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| 6 Mo. T’s (YTM) |
5.03% |
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| 5 Yr. U.S. T’s |
5.92% |
| 7 Yr. US T’s |
5.98% |
| 10 Yr. US T’s |
6.04% |
| 30 Yr. US T’s |
6.17% |
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| LIBOR - 1 mo. |
5.22% |
| LIBOR - 3 mo. |
5.38% |
| LIBOR - 6 mo. |
5.75% |
| LIBOR - 1 yr. |
5.95% |
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"2nd Annual" Interest Rate/CMBS Market Update—August Meltdown
Aug. 1998: Last year’s crisis was precipitated by international instability (Russia, Asia, South America) which led to a "flight to quality" to U.S. T’s and a decoupling in spreads between AAA’s and T’s. 10 yr. T’s plummeted to historic lows, near 4.00%. Uncertainty led to wider pricing, re-trading and near panic among CMBS originators. Aug. 1999: Rising T’s and widening spreads have brought CMBS fixed rate loans into the mid- to high 8% range but for different reasons: (1) Y2K: Bond issuers are leery of 4th quarter issuance, want liquidity and are entering market early. (2) Supply/demand: Corporate America on a record borrowing binge with over $1 trillion in total 1999 issuance projected, $587 billion sold to date. Bond buyers are like sharks circling in the water. (3) U.S. T’s: This week’s economic reports pushed the 10 yr. T to 6.03%. Reasons: productivity, unemployment and labor cost figures were all inflationary leading to a consensus among economists that the Fed will raise rates on August 24. (4) CMBS: This week’s shocker was the pricing on a high quality pool originated by a major investment bank with a stellar reputation. 10 yr. AAA’s priced @ T’s + 1.75% -vs- T’s + 1.20% on 6/15 and a 1999 low in May @ T’s + 1.09%. This is a 55 bp increase. Break-even spreads for CMBS pools have moved to the T’s + 2.30%-2.40% range; was at T’s + 1.90% for much of the year. After factoring in the profit/risk spread of 30 to 45 bps, look for new loans to be priced in the 8.50-8.75% range. Is there any good news? Yes, we predict the market will stabilize by November 3, 1999, the date of the Annual GSP A-T Luncheon at the Century Plaza Hotel.
TRANSACTION OF THE WEEK
$5,100,000 (78% LTV) in La Quinta for 43,600 s.f. of "In-Line Retail" Within a 60-Acre/450,000 s.f. Shopping Center A dominant community center strategically located in the submarket’s most traveled intersection (57,000 cars per day). The center includes a Wal-Mart and an Albertson’s. Development began in 1993 and is still ongoing. Both a movie theatre complex and a "big box" office supply store have recently pre-leased space due to come on line in 2000. Our loan is secured by 3 non-contiguous buildings within the center (each on a separate legal parcel). The space is 100% leased to 17 tenants @ market rents. Tenants are a mix of national, regional and local non-credit tenants including two restaurants. Challenges/Solutions: (1) The in-line space has virtually no operating history because subject parcels were recently completed and leased. GSP negotiated financing based upon leases in place. (2) Treasury yields spiked significantly during processing, but after application. GSP negotiated a reduction in the lender’s minimum DCR threshold from 1.30 to 1.27 in order to maintain proceeds applied for. Terms: (1) Rate: 10 year T + 2.35%; (2) Term/Amort: 10/30; (3) LTV: 78%; (4) DCR: 1.27; (5) Non-recourse; (6) Lender Fee: par. (David Stepanchak, Steven Hamermesh)
$535,000 (50% Loan to Cost) Land Acquisition Loan For 1.54 Acres Of Unentitled Land In Northwest San Fernando Valley Planned Development: 2-freestanding regional restaurants. One restaurant will be a build-to-suit, one restaurant will be on a ground lease. Borrower had executed leases at the time of land closing. Full entitlements are expected in November of 1999. (1) Term: 6 months (2) Rate: Prime +1.00% (3) Amort: Interest Only (4) Fees: 1.00%. Lender issued LOI for 80% construction loan at LIBOR +3.00% upon entitlements. (Gary Mozer, Peter Smyslowski)
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Speakers Corner
George Smith will be speaking at Cox, Castle and Nicholson’s Annual In-House Real Estate Finance Seminar on Tuesday, August 24, 1999.
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HOT MONEY!
Life Company Rolls Out "LIBOR" Floating Rate Program for Stabilized Properties Nationwide program is non-recourse and ideal for investors looking to wait out turmoil in the fixed rate markets. Properties must be institutional quality. Program Highlights: (1) Loan Amounts: $5,000,000 - $30,000,000; (2) 150 to 200 over 90 day LIBOR priced to the quality of the underwriting; (3) Max LTV’s: Multifamily 75%, Industrial 70%, Retail 65%-70%; (4) Term: 3 or 5 yrs. at borrower option; (5) Amort: Up to 25 yrs., interest only available for low leverage transactions (50% range); (6) Prepay: For 5 yr. term @ 2.5% declining monthly to 0% prorated over the loan term; For 3 yr. term @ 1.5% with similar proration; (7) Lender Fee: 1.0%.
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