FINfacts XV-39

GSPartners

Volume XV | No. 39 | October 17, 2007

KEY RATE INDICES
Prime Rate	7.75%	1 Month LIBOR	5.04%	5 Yr US Treasury	4.28%	5 Yr Swaps	4.93%
12-MAT	4.86%	3 Month LIBOR	5.21%	10 Yr US Treasury	4.59%	10 Yr Swaps	5.22%
11th Dist COFI	4.36%	6 Month LIBOR	5.13%	30 Yr US Treasury	4.85%

Transactions of the Week

Transaction Description:

$28,370,000 (95% LTC, Non-Recourse) Senior Loan and Preferred Equity for So Cal Multifamily Portfolio Reposition. GSP secured both senior financing (80% LTC) and preferred equity (to 95% LTC) for the acquisition and renovation of two apartment complexes totaling 264 units, one in West Covina, CA and the other in San Pedro, CA. The first property is 99 units (98 1 bedroom, one 2 bedroom) built in 1972, the second is 165 units (14 singles, 149 1 bedroom, two 2 bedroom) built in 1960.

Challenge: One asset is age restricted and rent controlled, while the other is a Class C property in a difficult market. Both assets have small units relative to comparables. In addition, the financing was obtained during the recent credit crisis.

Solution: GSP identified capital sources comfortable with the properties’ characteristics based on (a) the sponsor’s experience renovating similar properties and (b) the attractive economics of the transaction. GSP supported the closing with market research defending pro forma values and worked attentively to keep the transactions on track while the capital markets struggled and liquidity dried up.

Senior Debt
Amount: $23,850,000
Rate: LIBOR + 1.95%
Term: 36 mos
LTC: 80%
Lender Fee: 1%
Non-Recourse

Preferred Equity
Amount: $4,520,000
Rate: 18%
Term: Contiguous with Senior Debt
LTC: 95%
Lender Fee: 2%
Non-Recourse

Key Players: Steve Orchard, Joshua Roseman, Kaleb Keller

Transaction Description:

$21,500,000 Construction Loan for a Limited Service Hotel (flagged, 135 rooms) in Las Vegas.

Challenge:
1. The developer was not experienced in hotel development or ownership.
2. The developer wanted the loan structured to eliminate lender loan origination fees on the construction loan.
3. The lender was constrained by its 80% Loan to Cost underwriting.
4. The developer and lender disagreed on the developer’s projections for the timing of construction and stabilization.
5. The closing of the loan was significantly delayed due to difficulties in obtaining building permits and other closing items. Failure to close by September 30th would have required the loan to go back to loan committee, which may have triggered a repricing of the loan as the financing market deteriorated after the commitment was issued.

Solution:
1. To get the lender comfortable, closing conditions included a signed management agreement with an experienced operator and a strong flag.
2. Since the developer had significant liquidity, GSP arranged for par pricing in exchange for compensating deposits at the bank
3. Through a residual land value analysis, GSP was able to demonstrate that significant value had been created through both entitlements and land appreciation; this allowed the lender to show the land at its current value rather than at its lower acquisition cost
4. To protect the lender in the event of delays in stabilizing the project, the Borrower posted a letter of credit as a contingent interest reserve. Additionally, two extension periods offered an additional cushion. The lender also agreed to eliminate any prepayment penalties.
5. GSP arranged for the construction loan to close in the third quarter by funding a land draw to retire the existing land loan. However, construction draws would not be funded until all required permits were in hand and other closing conditions had been satisfied.

Rate: Prime + 0.25%

Term: 18 mos + two 6 mo extensions

LTC: 80%

Prepayment: Open

Lender Fee: Par

Partial Recourse

Key Players: Gary M. Tenzer, Bryan Berkett

Interest Rate/CMBS Update

Interest Rates: Treasuries rose over the past few weeks on unexpectedly high employment reports and speculation that the Fed is “done” rate cutting for the time being. The bond market is also skittish over record oil prices and their potential inflationary effect. Note that oil prices spike as the Fed lowers rates due to the currency ratio between US dollars and Euros. CMBS: More good news, spreads are lowering as more buyers step in to the market. The market is recognizing improving collateral and underwriting under the “new paradigm.” Some originators are aggressively quoting new loans in the T + 160–165 range with some interest only available for acquisitions (ie, “cash to the loan”). This week’s unusual announcement by a consortium of major US and European banks of a $100 billion fund to back up commercial paper and other securitized debt was welcome news to the credit markets. Stay tuned…. (David R. Pascale, Jr.)

Speakers Corner

October 24, 2007

Gary E. Mozer, GSP Managing Director/Principal, will be speaker/moderator for the CRCGreen Council at the ULI Fall Meeting in Las Vegas, NV. The session title is “Capital Markets – Debt Market in Disarray!”

October 30, 2007

Steve Bram, GSP Principal/Senior Director, will be a speaker at the Commercial Real Estate and Capital Group of the Jewish National Fund’s inaugural panel event. Mr. Bram will participate in a panel discussion titled, “Real Estate Today: Challenges & Opportunities.” Other panelists include:

-- Stuart Gabriel, Director, the Ziman Center for Real Estate

-- Carol Schatz, Central City Association of Los Angeles

-- Jay Newman, COO, the Athens Group; Project director for the Montage Hotel project on Beverly

-- Clyde Stauff, Senior Vice President, Colliers International

-- Moderated by: Loryn Dunn Arkow, Partner, Cox, Castle & Nicholson LLP

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.

FINfacts Newsletter XV-39

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