|
TRANSACTION OF THE WEEK!!!
$26,911,000 (98% of Total Project Cost) Acquisition/Reposition Bridge & Equity Financing for South Bay and N. Orange County Apartments –and- $4,225,000 (86% of Total Equity) New Equity Financing for N. Orange County & Inland Empire Apartments: GSP has arranged 98% of total project cost senior bridge debt and joint venture equity (the JV equity was invested into the LLC, not a loan secured by UCC partnership interest or 2nd trust deed) for the acquisition/reposition of two apartment complexes in the South Bay and N. Orange County, CA. GSP simultaneously arranged, through the same joint venture equity group, 86% of the total equity requirement for the continuing reposition of two apartment complexes in N. Orange County & Inland Empire, in which GSP arranged the senior bridge debt last fall. GSP has arranged debt and equity over the past 2 years for 20+ acquisitions for this client who specializes in the acquisition and reposition of Southern California apartment complexes. The 2 New Acquisitions: South Bay Apartment Complex – 152 units, early 60’s vintage, 2-story garden style complex in 11 buildings, limited parking (1:1), unit mix 5% 1BR, 82% 2BR, & 14% 3BR, 3.5 acres, 1.5 miles from the ocean. N. Orange County Complex – 160 units, late 60’s vintage, 2-story garden style complex in 6 buildings (a total of 312 units), mid to late 60’s vintage, 68% 1BR, 32% 2BR, 6 acres. Value-Added Opportunity: The properties suffer from absentee management, foreign ownership, significant deferred maintenance (roof, plumbing, balconies, stairways & railings, parking surface), and 60’s vintage unit amenities. (1) Poor management contributed to current project rents approximately $150 to $200 below market and below market occupancy; (2) steadily improving local markets with over 95% occupancy in sub-markets; (3) purchase prices of 73% and 67%, respectively, below replacement cost; (4) borrower will actively manage, complete the physical improvements, raise rents to market, and stabilize the properties in 12-18 months. Capital Structure: (South Bay/N. Orange County). (1) Purchase Prices - $12,000,000 and $9,400,000; (2) Reposition and Closing Costs - $4,050,000 and $1,975,000; (3) Total Project Cost – $16,056,000 and $11,375,000 a total capitalization of $27,430,000. The Financing: Senior Debt - (1) Loan Amount: $21,625,000 or 79% of total cost; (2) Pricing: 30-day LIBOR + 3.25%; (3) Term/Amort: 3 years, interest only for the lesser of 24 months or completion of renovation then 30 year amort.; (4) Lender Fee: 1.00%; (5) Prepayment: Locked to prepayment for 24 months, then 1.00% exit fee waived if borrower utilizes lender’s permanent securitized loan in event of refinance; (6) Recourse: non-recourse. Joint Venture Equity: (1) Equity Amount: $5,286,000 or 86% of the total equity requirement; (2) Pricing: 16% cumulative preferred return, paid pari pasu; (3) Participation: First pari pasu to return equity, then 56.5%/43.5% (investor/borrower) of excess cash flow and residual sale or refinance; (4) Look-Back IRR: None; (6) Lender Fee: 1.00%; (7) Recourse: Non-recourse. The equity investor allowed a 1.00% acquisition fee paid to the borrower, effectively reducing the borrower’s contribution to just over 1.00% of the total capitalization. The Two Existing Properties: N. Orange County Complex – 128 units, early 60’s vintage, single story cottage-style complex in 32 buildings, all 2BR units, 9.3 acres. Inland Empire Complex – 276 units, mid 80’s vintage, 2-story garden style complex with 15 apartment buildings and 4 admin./recreation buildings, 35% 1BR, 65% 2BR, 10.8 acres. Capital Structure – GSP arranged senior financing for these assets last fall and the client contributed 100% of the equity requirement. In conjunction with the closing of the 2 properties in the South Bay and N. Orange County, GSP arranged equity to replace 86% of the total equity requirement with the joint venture equity partner supplying the equity for the 2 new acquisitions. The equity terms are identical to those listed above. Financing Challenge: Negotiating, in tandem, with 3 senior debt providers (1 new senior lender on the 2 new acquisitions plus the 2 separate existing lenders on the 2 existing properties for a change in the ownership/borrowing entity) and 1 equity investor (for all 4 properties) to achieve the closing of the new acquisitions in less than 45 days. (Gary E. Mozer, Lee T. Norman)
SPECIAL EDITION OF HOT MONEY!!! (Featuring examples of transactions in process here at GSP.)
200-Unit Apartment Complex, $5,700,000, T+175, 10/30, 80% LTV, 1.20 DCR, Lender Fee: Par. (Bryan, Gottlieb, Smith)
190,000 s.f. Single-Tenant Industrial, $10,000,000, T + 235, 10/30, 70% LTV, 1.30 DCR, Lender Fee: Par. (Gottlieb, Bryan)
60,000 s.f. Medical Office Building, $13,650,000, T + 185 (6-month forward commitment with spread and rate locked at application for no fee in order to accommodate borrower’s prepayment opportunity on existing loan), 70% LTV, 1.45 DCR, Lender Fee: Par. (Smith, Schwartz)
50,000 s.f. Unique Historic Office Complex, $10,425,000, 6-month LIBOR + 225 (7.25% floor, 12.90% ceiling), 15/25, prepayment: 1% first 5 years/Lender Fee: Par thereafter, 75% loan-to-purchase price, 1.20 DCR, (7.25% floor, 12.9% ceiling) no insurance impound, Lender Fee: 0.5% (Smith, Stepanchak)
130,000 s.f. Older Market Drug Anchored Center (to be repositioned), $9,200,000 multi-stage funding for renovation schedule with fixed rate of 8.75%, Phase 1: $5,000,000 (Lender Fee: Par), Phase 2: $3,000,000 (Lender Fee: 0.5%), Phase 3: $1,200,000 (Lender Fee: 1.5%), 10/25, 70% LTV, 1.25 DCR (based on total loan amount at stabilization), local portfolio lender. (Smith, Schwartz)
Single Tenant Retail, $4,000,000, public company tenant (no debt rating) 10 yrs. remaining on lease, T + 170, 10/25, 60% LTV, Lender Fee: Par, no lender legal fees, no cap ex reserves, no TI reserves.
525,000 s.f./12 building Industrial Lender Fee: Park, , $24,100,000, Acquisition/Reposition Bridge loan, 3 year term/interest only, 30-day LIBOR + 325, LTV: 80% of stable value, DCR: 1.15 funding, 1.25 months 13-24, 1.30 months 25-36, Lender Fee: 1.25%. Comments: Earnout, multi stage funding. $410,000 initial hold-back for TI’s, leasing commissions & CapEx, plus $20,000 per month in leasing reserve & $9,500 per month in CapEx reserve. Non-recourse. Closed to prepay year 1, then 0.5% prepay mos. 13-24, then 0.25% prepay mos. 25-30. Release price schedule for individual lender fee: Parcels: 115% of allocated loan amount or 100% of net sales proceeds until remaining portfolio hits 1.35 DCR, then 110% of allocated loan amount or 90% of net sales proceeds. (Mozer, Norman)
Class "B" Office Complex, 85% occupied, $13,750,000, T+120, DCR 2.05, 10/30, Lender Fee: Par. (Stewart, Smith)
450,000 s.f. Single-Tenant, Industrial Complex, $20,000,000, LifeCo lender, 10/25, 7.50% rate, 75% rate, Lender Fee: Par. (Bram, Black)
GOOD NEWS/BAD NEWS - Treasury Yields Drop, CMBS Spreads Widen: Interest Rates: 10-year T yield dropped from 5.83% to 5.66%. This week: (1) International: Latin America instability, Argentina indicated that they may suspend interest payments and China/Taiwan tensions escalate dramatically with rumors of an invasion and increased battle readiness by the Chinese army…investors reacted with a flight to quality; (2) Economic News: Non inflationary PPI and CPI reports were released midweek, although the PPI (Producer’s Price Index) was a mixed bag indicating finished product prices are stable with some upward movement on prices for raw materials and intermediate goods. CMBS Market: 10 year AAA spreads, after maintaining in the T + 120-125 range for a couple months, suddenly spiked. Three pools priced as follows: T + 128, T + 138 and T + 140. What does this mean? All three pools were made up of mixed product from multiple originators (not the big IBs). Some originators have raised new loan spreads 10-15 bps across the board, some increased for certain property types, others are holding spreads. Those holding spreads are of the opinion that there is no reason to panic because the three pools mentioned above were "dinged" because of their lack of branding (meaning that investors are differentiating between mixed pools and those originated by a single lender with all loans underwritten similarly). Also, bond buyers have plenty of product to choose from with the recent Ford Motor Credit offering, Freddie Mac pool, etc. Investor appetite for the next few major "branded" pools will be closely watched….Stay tuned….
|
