INTEREST RATE / CMBS UPDATE

$3,400,000 Cash Out Fannie Mae Refinance (Tier 2+, 6.44%) for 98 Unit Inland Empire "Bread and Butter" Apartment Complex: GSP has arranged Fannie Mae Financing (through ARCS) for this 1985 built, 9 building, 2-story complex. Amenities include: security gating, lush landscaping, swimming pool, tennis courts and new "tot-lot". Loan proceeds allowed the borrower to pay off floating rate acquisition and reposition financing. ARCS obtained an occupancy waiver on this transaction due to the recently completed reposition. Due to the repeat client relationship, ARCS streamlined the documentation process. Terms: (1) Rate: 6.44, fixed; (2) Tier 2+; (3) LTV: 77.5%; (4) DCR: 1.25; (5) Term/Amort: 10/30. (Gary E. Mozer, Gerald Price)

$2,555,000 Cash Out Fannie Mae Financing (Tier 2++, $111,000/unit) for 23 Unit Oceanfront Apartment Complex in Southern California: GSP has arranged Fannie Mae financing through our correspondency with ARCS Commercial Mortgage for this 3 building, 100% occupied property. The buildings were constructed separately (1947, 1953, 1956) and rehabbed over the last 24 months. Most units feature ocean views. All units have hardwood floors, new kitchens--each unit is unique with its own configuration and amenities. The financing enabled the borrower to recapture equity after repositioning the property. Lender recognized the market cap rate of 7.1% in their underwriting. Terms: (1) Rate: 6.81% fixed, (2) Tier 2++; (3) LTV: 73%; (4) DCR: 1.25; (5) Term/Amort: 10/30. (Gary E. Mozer, Gerald Price)

$2,175,000 Refinance for Single Tenant, Owner/User Surgery Center and Adjacent Medical Office Building in San Luis Obispo: GSP has arranged permanent financing for this two building medical center located adjacent to a major hospital in San Luis Obispo. Property Specs: Building 1: 2,600 sf., 1 story surgery center (borrower converted from a small retail store in 1999), improvements include operating room, recovery room, examination rooms, etc. Building 2: 8,000 sf., 2 story, newly built medical office, occupied by borrowing entity, a doctor's group. The financing allowed the borrower to recoup equity as the acquisition and construction was done "all cash". Terms: (1) Rate: 7.50%; (2) Term/Amort: 15/15; (3) 75%; (4) Recourse; (5) Lender Fee: Par. (Andrew Levant)

After the yield on the benchmark 10 year treasury reached 5.00% last week on optimism about the imminent "rebound" of the U.S. economy, this week's downbeat news and other factors contributed to a 30 bp rally-the 10 year closed at 4.75%. Factors: (1) Market now expects the Fed to cut rates at both the December and January meetings. Mood swing: Last week the market oversold treasuries on the expectation that the Fed was through with rate cuts. That perception changed with this week's high unemployment numbers and surprisingly weak preliminary 3rd Quarter GDP estimate: negative 1.1%. The market is bracing for a slew of potentially downbeat reports next week, including auto sales, NAPM Index, productivity, factory orders, November unemployment, etc. (2) Enron: The energy giant's recent implosion has sent ripples throughout the capital markets. Corporate bondholders sold in droves and fled to the relative security of treasuries. Enron's bonds were rated BBB+ in October and are now sub-junk…Bondholders are pointing to the rating agencies and investment banks for being "asleep at the wheel" and are left wondering what other so-called "investment grade" bond issues are in danger of crashing. Also, liquidity crunch could occur among several major pension funds and banks who invested in the then fast growing company in the late 1990's and last year. This may affect lending in those sectors. CMBS: Good News/Bad News. Good: CMBS bond spreads actually tightened slightly this week. Some 10 year AAA's traded just below Swaps +60 in both the primary and secondary markets. A new standard conduit issue actually priced 10 year AAA's at Swaps +57, with the entire AAA portion pre-sold to Freddie Mac and Fannie Mae. Bad: 10 year Swap spreads themselves gapped out from 58 (two weeks ago) to 75 this week, closing today at 72. Volatility is attributed partially to the Enron situation (Swap spreads are a function of market perception of overall credit risk) and the lowering of Treasury yields while the "all-in Swap rate" (Treasury + Swap spread) remained relatively constant. Some originators have widened their matrix app 10 bps, more on that next week…Stay tuned…(David R. Pascale, Jr.)