CMBS Update…. Originator Lets the Borrower

TRANSACTION OF THE WEEK!

$3,660,000 Construction/Mini-Perm Financing (85% Loan-to-Cost) for Pet Store Anchored Retail in LA County: GSP arranged construction financing for this 21,000 s.f., 100% pre-leased center. The 6 tenants include the 11,000 s.f. pet store anchor, plus 5 in-line tenants (all regional or national chains). The lender only required 75% pre-leasing, however the borrower was able to lease out the entire center in this underserved market. GSP negotiated a total loan fee capped at $20,000 and a minimal construction disbursement fee of $5,000. Terms: Construction Loan: (1) Rate: Prime + 1.00%; (2) Term: 15 months w/ one 6-month option; (3) Amort: Interest only; (4) Loan-to-Cost: 85%; (5) Recourse. Mini-Perm: (1) Rate: 6-month LIBOR + 2.50% (8.75% start rate for 1st Quarter); (2) Term: 7 years; (3) Amort: 25 years; (4) Non-recourse; (5) LTV: 75%; (6) DCR: 1.30; (7) Prepayment: Yr. 1 - 2.0%, Yr. 2 - 1.0%, par thereafter; (8) Secondary financing allowed. (George Smith, Henry Bryan)

$2,000,000 Acquisition Financing for West LA Self Storage on Ground Lease: GSP arranged timely, non-recourse financing for this purchase of a 30,000 s.f., 370 unit self-storage property. GSP negotiated terms whereby the lender is not requiring the ground lease to subordinate to the mortgage. The lender acted quickly to accommodate the borrower's timetable. This 7-year floating rate financing provides a great deal of flexibility to our borrower (see prepayment below). Terms: (1) Rate: 6-month LIBOR + 3.00%; (2) Term: 7 years; (3) Amort: 30 years; (4) Non-recourse; (5) Lender Fee: 1.0%; (6) Prepayment: Yr. 1 - 2.0%, Yr. 2 - 1.0%, par thereafter. (Michael Gottlieb, Henry Bryan)

Environmental Update: GSP has recently processed a few shopping center transactions that contained old dry cleaners and gas stations with environmental issues. These financings can get done if the right combination of lender and vendors is assembled. What we have learned: (1) Presence of a dry cleaner does not necessarily require Phase II drilling below the surface; (2) In the event that a Phase II is required, the borrower is not always required to drill down to groundwater; (3) We have identified lenders who do not require the municipality to issue a 'no further action letter' as a pre-requisite for financing; (4) We have also identified lenders that do not even require a Phase I (for deals under $5mm). Lenders are taking calculated risks with blanket environmental insurance policies, which pass on a nominal cost to the borrower (less expensive than obtaining the environmental reports). In other cases, we can arrange environmental insurance to indemnify the lender for 5 years beyond the loan term (typically 15 years) at a cost that is not prohibitively expensive. (Michael Schwartz)

FNMA UPDATE… Did you know? If you have an existing Fannie Mae loan, you can cash out up to 80% LTV with a Fannie Mae second mortgage. The second is priced like a 1st mortgage currently around 8.61% for an 80% LTV with a 1.25 DSCR. You can cash out multiple times (2nd, 3rd, 4th, etc. as cash flow increases). This is a great opportunity for value added properties. This program works for acquisitions also. Buyers can assume an existing Fannie Mae 1st and utilize the second mortgage option to obtain the higher leverage.

HOT MONEY!!!

CMBS Update…. Originator Lets the Borrower "Pick a Lock": Borrowers can play the "Swap game" as follows: At application the lender offers two spread lock options, both are good for 60 days and free (borrower puts up the usual 1.0% refundable application fee): (1) "Traditional" Spread Lock: Lender locks the spread over the 10 year T for 60 days; (2) "Swap" Spread Lock: Lender locks the spread over 10 year T + 10-year mid-market Swap. Therefore, if Swap spreads narrow the borrower benefits as his all-in spread over T's narrows also (borrower also takes the risk if Swap spreads widen). Today's Spreads Over Swaps: (Note: 10-year mid-market Swap is approx. +130 over Treasury) Apartments: +90 to 100; Industrial: +105 to 115; Anchored Retail: +100 to 110; Unanchored Retail: +125 to 135; Office +105 to 120. How does one choose? If you think Swaps are widening or don't want to worry about them, take the "traditional"; otherwise, take the new "Swap spread lock".

JOB CORNER

Underwriter/Assistant For George Smith: Candidates should email bios (gsmith@gspartners.com). Candidates must have real estate income property underwriting background. Preference given to highly motivated individual seeking unique apprenticeship opportunity leading to career in real estate investment banking at GSP.