Treasury Rally, Sub 50 Swaps

$11,700,000 Refinance of 95,000 s.f. West Los Angeles Office Building on 30 year Remaining Term Ground Lease: George Smith Partners has arranged self amortizing permanent financing for this ground-leased, mid-70's vintage, 10 story building. Property Specs: Major renovation in 1998, 98% occupied, 6 stories of office above 4 stories of parking, approximately 30 office tenants plus 7 lobby tenants. Ground Lease: 30 years remaining, unsubordinated, ground rent is reset every 10 years to "market" via an appraisal process. The ground rent was reset during application/underwriting. A major insurance company provided the financing and worked through the "moving parts" during the process. Proceeds were used to pay off existing financing, no cash out. Terms: (1) Rate: 12 year interpolated T + 2.35%; (2) Schedule: 360/360; (3) Term/Amort: 20/20; (4) LTV: 75%; (5) DCR: 1.30; (6) Non-recourse; (7) Lender Fee: 0.75%. (Steve Bram, John Lopez, David R. Pascale, Jr.)

Treasury Rally, Sub 50 Swaps and Lagging CMBS Volume Create Borrower's Market, Spreads in the 150-200 Range, Floors Kick-In: Today's 10 year T closed at 5.04% after a week of conflicting news on the report front leading to uncertainty about the strength of the U.S. economic recovery. Swap spreads, which historically have hovered in the 70-90 bps range, spent the week in 49-51 territory. Year-to-date domestic CMBS issuance is approximately $9 billion behind 2001 levels ($28 B vs. $19 B). The lack of supply has tightened bond spreads-- 10 year AAA's are trading at +42, about 5 bps inside the average for the last year. Pipelines are low across the board. Anecdotal information: I spoke to a major investment bank's West Coast regional office. The girl who enters all loan new submissions into their tracking system hasn't had this much "free-time" in over 5 years. Explanations include: lack of activity in the property acquisition market (persistent bid-ask gap), 10 year cycle of refinancing is down due to recession in 1992-1993. What does it all mean for borrowers? Spreads have narrowed, lenders competing for business. Spreads over 10 year Treasuries (Full leverage transactions, 75-80% depending on product type): Class "A" Apartments (155-165), Class "B" Apartments (165-175), Grocery anchored retail (170-185), Office (180-200), Industrial (170-190). Low leverage transactions are being priced "to the bone" in the 115-140 range with floors around 6.50%...Stay tuned... (David R. Pascale, Jr.)