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| Volume VIII, No. 44 |
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November 10, 2000 |
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| KEY RATE INDICES |
FANNIE MAE RATES * |
| Prime Rate |
9.50% |
| 11th District |
5.54% |
| 3 Mo. T’s (YTM) |
6.36%
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| 6 Mo. T’s (YTM) |
6.35% |
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| 5 Yr. U.S. T’s |
5.74% |
| 7 Yr. US T’s |
??? |
| 10 Yr. US T’s |
5.80% |
| 30 Yr. US T’s |
5.87% |
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| LIBOR - 1 mo. |
6.62% |
| LIBOR - 3 mo. |
6.76% |
| LIBOR - 6 mo. |
6.72% |
| LIBOR - 1 yr. |
6.71% |
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| Tier 2+ (80% LTV) |
7.88% |
| Tier 3+ (65% LTV) |
7.70% |
| Tier 4+ (55% LTV) |
7.50% |
| 10 yr. term/30 yr. amort. |
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TRANSACTION OF THE WEEK!!!
$3,603,000 Fannie Mae Loan (7.88% fixed rate, 1.25 DCR) for 88 Unit Apartment Building, 29 Calendar Days from Application to Funding: GSP, acting as a correspondent for ARCS Commercial Mortgage, provided Tier 2+, Fannie Mae financing for this 96% leased multifamily property in the northern San Fernando Valley. The lender funded this loan even though the borrower purchased the property for $3.4 million 18 months ago. Timing was extremely important for our borrower, so the transaction was completed in less than a month, including ordering of all third party reports, processing, approval and closing. Property Specs: (1) Mid-1960's construction; (2) 88 units: 32 singles, 48x1BR, 8x2BR; (3) courtyard configuration around swimming pool with "catwalk" hallways; (4) 2-story walk up; (5) 60's vintage flat roof; (6) covered parking; (7) laundry room; (8) balconies or patios with most units. Borrower plans to complete a light renovation and substantially increase rents. This fixed rate loan allows for additional future fundings at the lender's then current best rate as the property's cash flow increases. Terms: (1) Rate: 7.88%; (2) Term/Amort: 10/30; (3) LTV: 75%; (4) DCR: 1.25; (6) Non-recourse; (7) Lender Fee: 1.0%. There is no additional charge to the borrower to obtain this type of loan through GSP compared to the lender directly. (Steve Bram, David R. Pascale, Jr) |
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| CMBS World Keeps Shrinking w/ Mergers and Narrowed Profitability: Our current tally is 26 originators with several questionable regarding continuing operations. Our count has 13 commercial banks, 3 finance companies, 7 Wall Street Investment Bankers and 3 Insurance Companies. (1) The Mergers Reduce the Players: (a) JP Morgan/Chase (b) Paine Webber/UBS and (c) Column: DLJ/CS First Boston. (2) Narrowed Profitability: In any business where the providers exceed the product, profits shrink and margins tighten. CMBS product has become a "commodity". The days of the mega parties and 8-figure compensation packages are over. Pricing spreads relative to corporate bonds have reflected this change. One major originator told us that their spread on their last pool was 1%. This is the equivalent of making a 1 pt. origination fee after all processing costs have been paid. Also, there are risks associated with holding the loan pre-securitization, B buyers kicking out loans, subordination levels from the rating agencies, etc. At these spread levels, some originators question if the risks and cost of capital justify staying in the business. (3) Profit Spreads by Product Type: Discussion with the Head of Originations for a bank-sponsored Conduit indicated that their profit model by product type: (a) Multifamily - ½ pt.; (b) Market Drug Anchored "A" Quality - ¾ pt.; (c) Other Retail - 1 1/4 pts.; (d) Best Office and Industrial - 1 1/4 pt.; (e) Best Hotel - 2¾ pts.; (g) This pricing reflects 80% LTV, 1.25 DCR (1.20 DCR on multis, 1.40 on hotels), profitability varies depending on DCR, product quality, etc. (4) Volume Expectations: Annual volume going forward for the next few years appears to be in the $45 to $55 billion range, making for interesting times, considering the CMBS market peaked at $78 billion in 1998. (5) More Dollars for Hotels: Within past week the Fitch rating agency announced they will accept 12 month trailing instead of 3 year average underwriting for better quality hotels. (6) B Piece Buyers Requirements Have More Impact Than the Rating Agencies: B Piece buyers purchase the unrated portion of the bond pools, i.e. BB and below. This represents 8% of the typical securitization. They have the right to kick out loans arbitrarily and it is not unusual for 5% to 10% of the pool to be heavily negotiated. Rejected loans, while performing and meeting rating agency requirements, can wind up being discounted by as much as 8 pts to be sold off as whole loans, i.e. a 1% premium in rate for the buyer, further cutting into the originator's profits. When applying for CMBS loan you must ascertain the confidence level of the originator in the product quality. It is not unusual for marginal quality product to be repriced or rejected when reviewed by staff involved with B piece buyers and/or selling the bonds. (George A. Smith) |
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SPEAKER'S CORNER
A Busy Week for George Smith (Week of Nov. 13th-17th)!: (1) Tuesday AM: Speaking at the Annual CREW CAST Meeting at Skirball Center (Commercial Real Estate Women's Group); (2) Thursday: Chairing the Real Estate Finance Panel for the AICPA Meeting in Las Vegas; (3) Friday: Part of his continuing luncheon briefing series at Fulbright and Jaworski.
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Association of Corporate Real Estate Executives: Annual Holiday Party and Fundraiser for Olive Crest (home for abused children). Meeting Time: Tues., Nov. 14th - 4:00 p.m. to 7:00 p.m. at the Long Beach Marriott. Cost: $38.00. We will have a Silent Auction and Live Auction. Last year we raised $10,000!!! For information, please call Gerald Price (ext. 114).
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5th Annual USC/UCLA Real Estate Alumni Groups' Pre-Game Event: (1) Pre-dinner speech by mayoral candidate Steve Soboroff; (2) Football hype and predictions with broadcast/sports personalities; (3) $50.00 advance price includes cocktails, dinner and parking. For more information, contact Bea Barnett @ (310) 516-2352.
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| * GSP is an L.A. correspondent for ARCS Commercial Mortgage, the nation's largest FNMA/DUS originator. |
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