FINfacts Newsletter XV-16

Volume XV  |  No. 16  |  May 9, 2007 KEY RATE INDICES Prime Rate  8.25% 1 Month LIBOR  5.32% 5 Yr US Treasury  4.55% 5 Yr Swaps  5.03% 12-MAT  5.03% 3 Month LIBOR  5.36% 10 Yr US Treasury  4.64% 10 Yr Swaps  5.18% 11th Dist COFI  4.30% 6 Month LIBOR  5.36% 30 Yr US Treasury  4.82%     Transactions of the Week Transaction Description: $17,650,000 Fixed Rate, Non-recourse Permanent Financing for a 152-Unit Multifamily Property in Ontario, CA.  GSP arranged financing for the acquisition of a 152-unit multifamily property consisting of 19 two-story buildings located in Ontario, CA. The property, built in the 1980’s, is 98% occupied. The business plan anticipates a 3-5 year hold and the borrower intends to implement an aggressive management program coupled with an extensive renovation plan to bring rents up to current market levels. In addition, the borrower will apply for a tax abatement status with the County as the property is under an Affordable Housing Agreement, thereby reducing property taxes by 60% or more and adding significant value. While this strategy and anticipated three year holding period have “bridge qualities”, the asset currently generates cash flow and GSP was able to secure fixed rate conduit financing with five years interest only with a flexible prepayment option. Rate: 5 Yr T +1.49%; all in rate of 6.15% Term: 5 yrs Amort: Interest Only LTV: 80% DCR: .90 (in place), 1.20 (stabilized cash flow, interest only) Prepayment: Locked out until earlier of 2 yrs after securitization or 3 yrs after closing, YM thereafter; or for a 1% premium at closing greater of YM or 1% in yrs 1-3; open at Par in yrs 4-5 Non-recourse Lender Fee: Par Key Players: Steve Bram, Steven Yazdani Transaction Description: $13,825,000 Fixed-rate, Non-Recourse Acquisition/Reposition Financing for 27,730 Sq. Ft. Mixed-use Buildings in West Hollywood, CA. GSP arranged a loan for 85% of all-in cost for the acquisition/reposition of two mixed-use buildings in West Hollywood totaling 27,730 sq. ft. The buildings, constructed in the 1980’s, are 100% occupied. The borrower plans to re-tenant several of the spaces and substantially renovate the property. Approximately half of the tenants will be vacating to re-locate within a year. Challenge: The acquisition required the borrower to post $1,000,000 of non-refundable deposits within a short timeframe, with a counter-offer looming from a substantial institutional investor if the buyer didn’t execute. Solution: GSP facilitated the loan approval, including completion and review of third party reports, within three weeks. Rate: 6.95% Term: 2 yrs with two 1 yr extension options Amort: Interest Only LTC: 85% Non-recourse Lender Fee: 1%; first ext. free; second ext. 0.25% Key Players: Michael Schwartz, Thomas Falbo Hot Money National Lender Providing Very High-leverage Non-participating Mezzanine Debt for Construction, Value-add Acquisitions, Rehab and Recapitalization of Multifamily, Retail or Mixed Use Assets. Mezzanine Debt secured by borrower equity interests in conjunction with a new or existing third-party senior lender. Can do mezz behind both bridge and construction loans. Lender is a large REIT that can accept cap rates of mid 4% for multi family assets. Lender could provide construction mezz up to 98% of cost on multifamily project built to 6% or less return on cost. HIGHLIGHTS Transaction Size: $4-100M Rate: LIBOR + 7.0-9.0% Loan Term: 2-5 yrs (up to 3 yrs fixed) Max LTV: 95% Max LTC: 100% Non-recourse Property Types: Multifamily and mixed use Prepayment: Open Fees: 2% in, 0% out Geography: Nationwide, Major Metro Areas Only Non Participating Interest Rate/CMBS Update Treasuries: 10 Year T sitting in the low 4.62% range this week as bonds have rallied on weak economic reports, but now are waiting for today’s Fed announcement and subsequent CPI reports later this week. CMBS: Markets still in turmoil. Lack of liquidity in the CDO markets is forcing B piece buyers to hold the paper. Therefore, lots of “kick-outs” are occurring. We have found that depending upon exposure and market “feedback,” lenders are divided in groups: (1) Some are pricing semi-aggressively as they look to 60-90 days from now when the market is expected to be in equilibrium; (2) Some are widening all application quotes and some in application transactions as they “mark to market,” and; (3) Some are completely “dark” or closing operations as they are taking losses on kick-outs and new yield requirements from the bond buyers. Once again, “branding” is in favor as bond buyers recognize originators with solid underwriting.   While distressing to investors, this chaos in the market provides GSP with increased opportunities to share our expertise and guide our clients to the smartest and most reliable financing sources available. We appreciate your confidence in us and look forward to working with you.   Stay tuned… (David R. Pascale, Jr.) Speakers Corner May 17, 2007 Steve Bram, GSP Principal and Senior Director, will participate in a panel discussion on “The Apartment Market in 2007: Can a good thing last forever?” at the 2007 San Fernando Valley Economic Summit. Other panelists include: ·         Steve Heimler, President and CEO, Stratus Real Estate ·         John Walsh, Vice President/Investments, Marcus & Millichap ·         Rick Entin, Principal, Entin Properties (moderating) The panel will explore current market conditions and the near and long term outlook for the multi-family sector in the Greater San Fernando Valley. Panel experts will discuss topics including investment sales activity, management issues, development and conversion activity, and the related debt and equity markets.   The conference is on Thursday May 17, 2007 7:30 am – 1:30 pm at the Sheraton Universal Hotel. Join Us As We Reach New Heights George Smith Partners is in the midst of a record-setting period of growth. As we continue to reach new heights, we are selectively seeking several seasoned and successful financial professionals to join our team. Please direct confidential inquiries to Todd August, Chief Operating Officer, at (310) 557-8336, Ext. 125. ©2007 George Smith Partners, Inc. FINfacts is an ePublication of George Smith Partners, Inc. For Promotional Purposes Only. All Rights Reserved.