FINfacts Newsletter XV-3

Volume XV  |  No. 3  |  February 1, 2007 KEY RATE INDICES Prime Rate  8.25% 1 Month LIBOR  5.32% 5 Yr US Treasury  4.85% 5 Yr Swaps  5.25% 12-MAT  4.93% 3 Month LIBOR  5.36% 10 Yr US Treasury  4.86% 10 Yr Swaps  5.33% 11th District COFI  4.36% 6 Month LIBOR  5.40% 30 Yr US Treasury  4.96%     Transactions of the Week Transaction Description: $15,961,440 Fixed Rate Bridge Financing (88% LTC) for 77,165 Sq. Ft. Office Building in Orange County, CA. GSP arranged bridge financing for the acquisition of a 77,165 sq. ft. Class B office building located in Costa Mesa, California. The property is 100% leased to ten tenants at below market rents with all the leases expiring within the next 2-3 years. Structure: GSP structured the financing based on 80% of the future stabilized value at market rents. This enabled the borrower to finance future tenant improvements, leasing commission costs, as well as an interest reserve, resulting in the financing of all the costs relating to repositioning the building. Furthermore, in order to take advantage of the inverted Yield Curve GSP marketed the transaction to lenders as a fixed rate bridge loan priced over Swaps. This saved the borrower .35% (1 Month LIBOR vs. 3 Year Swaps) at the time of funding. Rate: 2 Yr Swaps + 2.85% Term: 36 months Amort: Interest Only LTC: 88% DCR: 0.60 Prepayment: Yield Maintenance on index, open last 12 months of term at Par Non-recourse Lender Fee: 1% in-1% out Key Players: Shlomi Ronen, Anna Saucier Transaction Description: $7,300,000 Fixed-Rate, Permanent Financing for a 4.5 Year Fee Simple Interest in a SoCal Grocery/Drug Anchored Retail Center. The borrower owns approximately eight acres of land below 110,000 sq. ft. of improvements which are master leased to a publicly-owned, national grocery store chain. The grocery store sublets to an unrelated grocery/drug tenant mix. The challenge in this transaction was the lack of a dedicated exit strategy. The ground lease expires in four and a half years at which point the master lessee will either 1) give the improvements back to the borrower or 2) deliver the land free of any improvements. As this land is in an A+ location, the sponsor will have a variety of very attractive opportunities when the ground lease expiries. In scenario 1, the sponsor could continue to operate the center but would now own both the ground and improvements. In scenario 2, the sponsor could redevelop to a higher density with better visibility from the high traffic corner. GSP convinced the lender that either exit strategy was incredibly attractive and would allow for an easy refinance in 4.5 years when their loan would come due. The borrower was anxious to refinance their current Prime-based loan to lower their debt service and fix their rate. Rate: 5 Yr CMT + 1.45% Term: 4.5 yrs Amort: 25 yrs LTV: 50% DCR: 1.35 Prepayment: 3%, 2%, 1%, open Lender Fee: 0.50% Recourse: Limited to a corporate entity Key Players: David Stepanchak, Allison Higgins Transaction Description: $4,650,000 Defeasance and Refinance with Five Years Interest Only in Delray Beach, Florida. GSP arranged the defeasance and refinance of a 50,489 sq. ft. industrial business center in Delray Beach, Florida. GSP negotiated the ability to post a Letter of Credit instead of holdbacks or cash flow sweeps for two large tenant rollover years. GSP also marketed for the right defeasance management for the transaction, thereby saving $10,000 in defeasance costs. Rate: 10 Yr T + 1% Term: 10 yrs Amort: 30 yrs (5 yrs IO) LTV: 80% DCR: 1.20 Prepayment: Defeasance Non-recourse Lender Fee: Par Key Players: J.Jay Brooks, Anna Saucier Interest Rate Update Last week we looked at how the Wall Street Journal economists fared with their 2006 fixed rate predictions. This week we look at floating rate predictions from last year and this.   Prime Rate began 2006 at 7.25% and after four increases by the Fed, ended at 8.25%. The WSJ economists’ predictions regarding where Prime would end in 2006 ranged from 6.50% to 8.50%, with the average forecast being 7.73%. Overall, they didn’t anticipate the full extent to which the Fed would raise the rate. Only two of the 56 economists, Tracy Herrick (The Private Bank) and Lou Crandall (Wrightson ICAP), were right on the money.   So, where do the economists think Prime Rate is going in 2007? The economists’ predictions for Prime on June 30, 2007 range from 6.00% to 8.75% and the average is 8.01%. The predictions for Prime for December 31, 2007 range from 5.50% to 9.25% and the average is 7.83%. What about Herrick and Crandall? They have very different opinions about where it will be at the end of 2007. Tracy Herrick believes it will be at 7.00% and Lou Crandall believes it will be at 8.50%. It will be interesting to see if one of them is right two years in a row.   30 Day LIBOR opened 2006 at 4.50%, climbing to 5.43% in June. Then it virtually "flat lined" at about 5.32% for the second half of 2006. Keep in mind that LIBOR indices hovered at about 1.00% from 2000 to mid-2005.   What can we expect for 2007? The WSJ economists don’t make LIBOR predictions. A random survey of Investment Bank economists found them split, with half predicting LIBOR going to the 5.50% range and half predicting it to move to approximately 4.75%. Stay tuned…   Dinah Hall and David R Pascale, Jr. ©2007 George Smith Partners, Inc. FINfacts is an ePublication of George Smith Partners, Inc. For Promotional Purposes Only. All Rights Reserved.