FINfacts Newsletter XVII-35

Bank funding Apartment Construction Loans. Transactions must "make land sense", meaning that the land cost cannot be at mid-2000's condo land prices. A good benchmark is $20,000 per unit or below. Based upon solid "real world" pro forma income projections, lender will fund up to 75% of cost. Pricing is LIBOR based with a 6.00% floor on the all-in rate; Transaction Size: $3,000,000-$10,000,000 Rate: 6.00% floor; Loan Term: 2-3 years; Recourse; Geography: Southern California and Arizona

New Bank Program Funding Nationwide Loans for "Tier 1" Investors This lender will consider Perms and some Construction. This bank has a clean balance sheet, no legacy issues. Focus is on good borrowers in primary and secondary markets. Lender will consider "some" non-recourse, but most loans will be recourse. Lender underwrites to a 10.5% debt yield, which is fairly aggressive in today's environment. Will consider single tenant with long lease term. Transaction Size: Up to $7,000,000; Rate: 6.5%; Loan Term: 3-5 years; Amort: 25 years Max LTV: 60-65% Max LTC: 50% Min DCR: 10.5% debt yield. Property Types: Office, Industrial, some Retail; Fees: 1.0% Geography: Nationwide

If you have an inquiry regarding George Smith Partners' commercial real estate financing, asset sales or advisory services please contact your GSP representative or Todd August, Chief Operating Officer, at (310) 867-2995 or taugust@gspartners.com.

By Steve Orchard

The Federal Deposit Insurance Corporation (FDIC), in coordination with the other member Agencies of the Federal Financial Institutions Examination Council (FFIEC), adopted a policy statement on October 30th supporting prudent commercial real estate (CRE) loan workouts. This policy statement stresses that performing loans, including those that have been renewed or restructured on reasonable modified terms, made to creditworthy borrowers will not be subject to adverse classification solely because the value of the underlying collateral declined. My read and perspective of the policy follows.

Clarity is good. Banks are facing big decisions in uncharted waters, and struggling to understand the potential consequences of their actions. So to the extent that this document clarifies regulatory expectations, it is helpful. However it is impossible to craft clear and precise regulations that address all the complexities of specific loans. Therefore, the policy statement is necessarily vague. It tries valiantly to provide practical guidance in the form of examples, but the document makes clear that no blanket rules will apply and it gives banks discretion. Moreover, the policy statement affirms the prevailing wisdom that regulators are not pushing for an immediate and dramatic "house-cleaning." The policy explicitly permits banks to split troubled loans into performing A notes and small “classified” B notes, thereby easing capital reserve requirements. It also grants license with respect to estimated asset “value”, and thereby encourages banks to “pretend and extend”. The clarified policy is not a forcing mechanism that will unleash transactional velocity. That said, it does demand that banks take action to restructure troubled loans, just without foreclosure or sale. These outcomes are probably good for the economy and the capital markets in general, because firm pressure could easily shatter our fragile system. But they are disappointing for transactional players and eager opportunistic investors.

George Smith Partners is expanding its team of top-notch mortgage brokers/originators. 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 Todd August, Chief Operating Officer, at (310) 867-2995.