FINfacts Newsletter XVI-27

Volume XVI  |  No. 27  |  September 25, 2008   Letter to the Editor   Print PDF KEY RATE INDICES Prime Rate  5.00% 1 Month LIBOR  3.43% 5 Yr US Treasury  3.12% 5 Yr Swaps  4.22% 12-MAT  2.66% 3 Month LIBOR  3.48% 10 Yr US Treasury  4.00% 10 Yr Swaps  4.58% 11th Dist COFI  2.70% 6 Month LIBOR  3.70% 30 Yr US Treasury  4.50%     Market Update Turmoil continues in the worldwide credit markets and all eyes are on the US Congress deliberations on the proposed $700 billion Troubled Asset Relief Plan (TARP). As we go to press, a consensus seems to be emerging. The credit markets have seized since the Fannie/Freddie/AIG bailouts, Lehman Brothers bankruptcy and Merrill Lynch “fire sale.” Banks and other financial institutions have virtually stopped lending to each other in the short term markets. A run on money market funds has been narrowly averted for now. Money markets and short term bank to bank lending are the lifeblood of the credit markets, essential for day to day operations. Short term rates in all markets from bank to bank, corporates, municipals, etc. have skyrocketed. This affects credit availability and costs for small businesses, large corporations and government entities throughout the country. The Fed has been using its entire arsenal of measures including: injecting over $200 billion in liquidity into the banking system, increasing swap lines, loosening restrictions on funds investing in banks, etc. Even with these moves, there is a consensus that some form of TARP must pass in order to avoid further deterioration of the credit market.   End of an Era: Goldman Sachs and Morgan Stanley’s conversion into commercial banks over the weekend marked the end of the investment bank era on Wall Street. A sector that once included now bygone names such as Smith Barney, Salomon Brothers, Paine Webber, EF Hutton, Lehman Brothers, Merrill Lynch and gave rise to the sobriquet “Masters of the Universe” is now virtually gone, most likely to be replaced by a more regulated commercial bank oriented financial system.   Rates: The ongoing credit crisis has continued a “flight to quality,” keeping Treasury yields down. However, it is interesting to note that foreign buyers of US Treasuries have expressed concern over the “safe haven” of Treasuries. The combination of the TARP plan, the bailouts of Fannie/Freddie/AIG and the ongoing US deficit could raise the national debt to 70% of GDP, the highest since 1954 when the US was paying off WWII costs. This may lead to higher interest rates in the future. LIBOR has risen approximately 100 bps during the recent crunch and is now over 3.40% which is reflective of the scarcity of essential short term credit. The questions remain: Will Congress pass some form of TARP? Will it be “enough” to calm the markets? If not, what is next? Stay tuned… (David R. Pascale, Jr.) Transactions of the Week Transaction Description: $18,600,000 Fixed Rate, Permanent Financing for a Two-Tenant Office Building in Silicon Valley. GSP successfully arranged financing for the take-out of a construction loan for a 30,000 sq. ft., pre-leased, Class-A office building. Challenge: Because the building had two tenants, many lenders were not willing to look at the transaction, even though the building was 100% pre-leased. Additionally, the Sponsor engaged GSP to solicit financing in April 2008 in anticipation of an increasingly tight credit market, even though the second tenant was not scheduled to take occupancy until October 2008. Solution: GSP located a lender comfortable with a two-tenant office building and able to provide a 90 day rate lock sufficient for the first tenant to take occupancy. The lender agreed to fund with one tenant in occupancy (approx. 50% of the total sq. ft.) and the second tenant in the process of completing their tenant improvements. Rate: 6.18% Fixed Term: 7 yrs Amort: 30 yrs LTV: 65% Prepayment: 5,5,4,4,3,2,1 Lender Fee: Par Recourse: 25% Key Players: Steve Bram, Allison Higgins   Speakers Corner October 2, 2008 Thursday, 8 am – 5 pm with a cocktail reception following   Gary M. Tenzer, GSP Principal/Senior Director, will moderate a panel at APARTMENTS 2008, produced by Real Estate Media publishers of Real Estate Forum, Real Estate Southern California, GlobeSt.com and the RealShare Conference Series.   Panel Topic: With Dislocation Comes Opportunity- Surviving Today's Capital Crisis--Who will Fill the Debt & Equity Financing Void for the Next 18 Months and into the Future?   Panelists Include: ·          Brian Benson, Chief Lending Officer, Imperial Capital Bank ·          Barbara Dugas-Patterson, Senior Vice President & Regional Director, Citibank ·          Cheryl Higley, National Director of Multifamily, RBC Capital Markets ·          David Kadin, Senior Director, Investments, Wrightwood Capital ·          Heidi McKibben, Vice President, Fannie Mae ·          Scott Lee, Vice President, GE Real Estate ·          Philip Powers, Senior Vice President, Security Pacific Bank   The Westin Bonaventure 404 South Figueroa Street, Los Angeles, CA 90071 In the Press Gary E. Mozer, GSP Principal/Managing Director, was quoted in the Wall Street Journal this week in an article titled “Commercial-Property Players Find Their Pressures Growing.” Come Grow With Us George Smith Partners is expanding its team of top-notch mortgage brokers – originators and assistants. We offer highly competitive compensation and an excellent environment in which to work, learn and be supported. GSP provides its employees with cutting edge market information, resources for identifying the best capital sources for each transaction, training opportunities and peer support whenever it is needed.   We invite you to consider a career with George Smith Partners. Please direct confidential inquiries to Stella Debibi, Director of Business Development and Recruitment, at (310) 557-8336, Ext. 103. ©2008 George Smith Partners, Inc. FINfacts is an ePublication of George Smith Partners, Inc. For Promotional Purposes Only. All Rights Reserved.