CMBS Lenders Stretching to Win Business

TRANSACTION OF THE WEEK!

$50,000,000 Fixed Rate, Non-Recourse Permanent Financing for New Luxury Student Apartments Adjacent to the University of Southern California. GSP has arranged $50,000,000 in permanent financing for a newly constructed, mixed-use, luxury student housing project in Los Angeles. The financing was used to retire $34,000,000 in construction debt, which GSP arranged in 2004, and provide significant cash out to the Borrower. GSP was able to persuade the lender to permit the high cash out by stressing the Borrower’s extensive track record in this product type and the considerable value created by achieving the entitlements. The property features 120 student apartment units and 10,717 net rentable sq. ft. of ground floor retail space. The entire building was fully leased in early 2006. The Borrower wanted to close the permanent loan prior to the issuance of a temporary certificate of occupancy (TCO); to accommodate this, GSP negotiated an initial funding sufficient to retire the existing debt by structuring a holdback to be released upon receipt of TCO. An additional holdback was provided which will be released when the property achieves a 1.20 DCR. The property features amenities such as 24-hour security service, concierge, recreation rooms, study lounges on each floor, high speed internet connections, Dish Network TV, and underground gated parking. Terms: (1) Pricing: 10 Yr Treasury + 1.07%; (2) LTV: 80%; (3) DCR: 1.20; (4) Loan Term: 10 yrs; (5) Amort: 6 yrs interest only then 30 yrs; (6) Non-recourse; (7) Lender Fee: Par. (Gary M. Tenzer, Aaron Wright)

$7,000,000 Construction Financing for an 85,041 Sq. Ft. Flex/Industrial Property in San Bernardino, California. GSP arranged senior construction financing (83.58% of total project cost) to develop three buildings that will be composed of flex/industrial, retail and office space totaling 85,041 sq. ft. The property has excellent street frontage along a major San Bernardino thoroughfare. The project is attractive due to high visibility, flexible floor plans, and a strong local service economy because of the presence of large regional employers. The project is 57% pre-leased to a credit tenant and the remaining space is speculative. Challenge: The single-story tilt-up project includes a number of small spaces with excellent frontage that will receive a high level finish in order to generate premium rents. Existing “industrial/flex” comparable rents do not support the sponsor’s pro forma, thus the loan proceeds were constrained by the appraised value. Solution: In order to maintain proceeds, the borrower deposited $900,000 in a restricted, interest bearing account available to rebalance the loan at maturity. As the sponsor’s pro forma proves out, value will be reassessed and deposits released. This solution maximized the sponsor’s flexibility in meeting existing liquidity covenants. The lender also lowered the interest rate spread by 20 basis points in exchange for the additional security. Terms: (1) Rate: 30 Day LIBOR + 1.55%; (2) Term: 24 Months + Option; (3) LTC: 83.58%; (4) Amort: Interest Only; (5) Completion and Repayment Guarantees; (6) Lender Fee: 0.50%; (7) Reserve Requirements: None. (Steven C. Orchard, David Bierman)

$5,600,000 Apartment Building Refinance in Downtown, Los Angeles. GSP arranged permanent financing for a 100+ unit apartment building located west of the 110 freeway in Downtown, Los Angeles. GSP placed the acquisition bridge financing on this asset approximately 14 months ago to allow the sponsor to acquire the property and reposition the units. The actual rental cash flow upon stabilization exceeded the sponsor’s pro forma and allowed him to refinance the bridge loan 18 months ahead of schedule. GSP identified a local portfolio lender that will underwrite to a 1.0x debt service coverage ratio, allowing the sponsor to pay off the current floating-rate debt with lower, fixed-rate debt, cover all closing costs, and provide an additional $150,000 to complete his improvements. Terms: (1) Rate: 7.25%; (2) Term: 5 yrs; (3) Amort: 30 yrs; (4) DSCR: 1.0; (5) LTV: 75%; (6) Non-Recourse; (7) Lender Fee: Par. (David Stepanchak, Allison Higgins)

HOT MONEY

CMBS Lenders Stretching to Win Business, New “Bells and Whistles”. We are seeing CMBS originators get creative and underwrite aggressively for solid transactions. Certain lenders are offering: (1) 35 yr amort; (2) 1.15 DCR-85% LTV for senior loan; (3) Interest Only periods; (4) Flexible prepay and/or open prepay at for a set period at end of loan term; (5) Funding “to be built” sections of a property with recourse and/or holdback structure. Of course, borrowers should not expect all of these features on every transaction. Some of these practices may become standard in this ever evolving marketplace.

INTEREST RATE/CMBS UPDATE!

Treasuries are “treading water” with the 10 Year staying under 4.80% as last week’s economic reports and dropping oil prices indicated a cooling economy with little inflation risk. Of course, the big news this week will be this Wednesday’s Fed Meeting. Consensus is pointing to another “no action” statement. Now speculation is centering on possible rate cuts in 2007. Stay tuned… (David R. Pascale, Jr.)

SPEAKERS CORNER

Steve Bram, GSP Principal/Senior Director, will be moderating the Financing Panel at the Apartments 2006 Conference on Thursday, October 5, 2006. The panel, which includes Senior Managers at Washington Mutual, Deutsche Bank, Citibank, ARCS, KeyBank, Greystone, Imperial Bank and Fannie Mae, will discuss "Getting Deals Done in the Low Cap Rate, Highly Competitive Debt & Equity Capital Markets." Previously at the Century Plaza, the conference has been moved to the Hollywood and Highland Center to accommodate the expected 1,500 person crowd. View the full agenda and register at www.realestateoutlook.com.

Shlomi Ronen, GSP Senior Vice President, will be speaking on a real estate finance panel September 19, 2006 at the USC Graduate Real Estate Association weekly Brown Bag Lunch Series.

Gary M. Tenzer, GSP Principal/Senior Director, kicked off the Fall semester Speaker Series at the USC Lusk Center for Real Estate on September 14, 2006. He discussed real estate financing and the current economic climate. The audience was 60+ MBA and Master of Real Estate Development students.