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| Volume VIII, No. 42 |
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October 27, 2000 |
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| KEY RATE INDICES |
FANNIE MAE RATES * |
| Prime Rate |
9.50% |
| 11th District |
5.509% |
| 3 Mo. T’s (YTM) |
6.33%
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| 6 Mo. T’s (YTM) |
6.37% |
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| 5 Yr. U.S. T’s |
5.79% |
| 7 Yr. US T’s |
??? |
| 10 Yr. US T’s |
5.71% |
| 30 Yr. US T’s |
5.74% |
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| LIBOR - 1 mo. |
6.62% |
| LIBOR - 3 mo. |
6.75% |
| LIBOR - 6 mo. |
6.70% |
| LIBOR - 1 yr. |
6.70% |
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| Tier 2+ (80% LTV) |
7.72% |
| Tier 3+ (65% LTV) |
7.57% |
| Tier 4+ (55% LTV) |
7.37% |
| 10 yr. term/30 yr. amort. |
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TRANSACTION OF THE WEEK!!!
$38,250,000 (100% of Development Cost) Construction/JV Equity Financing for 220,000 s.f. Mixed Use Center in Southern California This retail/office complex is well located in a Southern California coastal community with physical/political barriers to entry. The entitlement process took 4 years to complete. GSP arranged debt with a regional bank with the capacity to fund this transaction without participation and arranged equity with a unique "hands-on" JV partner who added additional value by negotiating several key points of the construction loan. Project specs: (1) 222,000 total s.f. on 23 acres, 11 buildings, Spanish architecture, high visibility intersection; (2) Retail: 186,000 s.f. including 58,000 s.f. grocery store, 23,000 drug store, 46,000 s.f. health club facility, 10 other tenants including several chain restaurants, 80% pre-leased; (3) Office: 36,000 s.f., 100% spec, consisting of one 15,000 s.f. 2-story stand-alone building and the remainder over parts of the ground floor retail. Financing Terms: Construction Loan: (1) Amount: $30,250,000; (2) Pricing: 90-day LIBOR + 2.25%; (3) Loan to Cost: 79%; (4) Term: 2 years w/2 - 6 month options; (5) Lender Fee: 1.00% plus 0.25% for each option; (6) Recourse. JV Equity: (1) $8,000,000; (2) 100% of equity, 21% of project cost; (3) Term: Up to 5 years; (4) Cumulative Preferred Return: 10%; (5) Targeted Overall Yield: Confidential; (6) Splits: When target yield is achieved either through an imputed sale which would determine capital accounts or an actual sale, then the developer and JV equity partner will split cash flow and profits 50/50; (7) Note: JV partner funded partial development costs prior to full entitlement. (Gary E. Mozer, Peter Smyslowski) |
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| $2,000,000 Permanent Loan for a 149,007 SF, Twelve Story Office Building in Downtown Los Angeles: Property Characteristics: The building was constructed in 1921. Today it serves jewelry district tenants, who operate in office space on floor 2-12. (63% of the NRA). The ground floor consists of retail space and a former Church which is now being used as a Theater (37% of the NRA). Deal Highlights: (1) During the closing process the General Partner passed away and the loan closing date remained unchanged- GSP was able to get the lender comfortable with the estate ramifications and that both property and asset management would remain unchanged. (2) Loan was closed prior to required environmental remediation as recommended in the Phase I environmental. Loan Terms: (1) Floating rate; (2) Index: 5 Year T + 3.00%, rate resets annually; (3) Term: 5 Years with a 5 year extension option; (4) Amortization: 25 yrs; (5) Prepayment Penalty: None (6) Lender Fee: 1% (7) LTV: 30%; (8) Non-Recourse. Lender information: This loan represents the first GSP closing with a portfolio lender who re-entered the commercial real estate lending market six months ago. GSP is currently processing approximately $75mm in financing with this source and finding them to be very flexible with respect to loan terms and deal structure. (Michael Schwartz, Behzad Omid) |
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| GSP CEO Gary E. Mozer's Comments from 2nd Annual Multi-Family Housing Forecast at UCLA Anderson School Mr. Mozer moderated the finance panel at this year's conference on October 25. Comments: (1) Southern California Apartment market one of the strongest in the US; (2) Upward pressure on rental rates is very strong, speculation centers on sustainability and "is this a bubble?"; (3) Supply and demand are out of balance with positive net absorption in virtually all submarkets, logistics prohibit building from keeping up with anticipated demand. Example: In 2000, LA County is building one apartment unit for every 17 new jobs created; (4) Cap rate fluctuation: In 1997 typical LA County apartment cap rate was 11+%; Today: 9.4%; Prediction for 2001: 8.9%; (4) Since April 2000: NASDAQ has dropped 35%, LA apartment building values have risen 14%; (4) Average occupancy: 96+% and rising; (5) Economic strata: Most new construction is aimed at the "upscale" market while the density in lower income properties continues to rise dramatically (i.e., multiple families in units, etc). |
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HOT MONEY!!!
Institutional Mezz Funds Abound GSP has spoken to several institutional lenders who are funding mezz loans. Due to their low cost of capital, the terms are quite competitive. Most will place mezzanine financing behind another lender or their own first mortgage. Value added transactions are targeted, although some ground-up construction transactions with substantial pre-leasing are eligible. Following are highlights from a nationwide lender rolling out a new mezz fund: (1) Mezzanine Investment Size: $3,000,000-$15,000,000; (2) Term: 3 years with 2 x 1 year extensions; (3) Current Pay Rate: approx. 9%-10%, although it may accrue; (4) IRR Target (reached via initial fee, pay rate, exit fee and/or participation): 12.5%-19%; (5) Getting Creative: Lender has structured a transaction with A, B and C pieces, i.e. LIBOR based bridge loan + mezz piece to acquire property (85% total loan to purchase price) and then a tenant improvements funding.
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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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