GSPartners
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Volume XIX | No. 11 | March 23, 2011
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KEY RATE INDICES
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Prime Rate
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3.25%
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1 Month LIBOR
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0.25%
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5 Yr US Treasury
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2.07%
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5 Yr Swaps
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2.23%
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12-MAT
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0.31%
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3 Month LIBOR
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0.31%
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10 Yr US Treasury
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3.34%
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10 Yr Swaps
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3.43%
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11th Dist COFI
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1.48%
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6 Month LIBOR
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0.46%
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30 Yr US Treasury
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4.44%
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| | | Transaction Description: | | $2,600,000 Acquisition Loan for 90% vacant 26,000 sf Strip Retail in Henderson, Nevada. Lender funded 7 business days after receiving request from GSP! GSP arranged quick close financing for this 2010 constructed retail property. The acquisition price was well below replacement costs. The center consists of 1) 2,600 sf pad leased to a leading fast food tenant for 20 years, 2) A vacant 15,000 sf retail building with leases in negotiation for 11,500 sf, and 3) Two pads totaling 9,900 sf. Both pads are vacant but have LOIs being circulated from other fast food tenants. Las Vegas retail vacancy exceeds 20% although the lender understood this assets' prime location and leasing potential. The lender also funded an interest reserve to cover the below break-even debt coverage. |
| | Rate: 12.5% | | Amort: Interest Only paid through a lender funded reserve account | | LTC: 67% | | Lender Fee: 4.5% | | Broker: Steve Bram |
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| | | | Portfolio West Coast Industrial Lender A regional West Coast lender is looking to expand their industrial portfolio and will "structure to suit" to the borrowers' requirements. This on-book program will advance from $1,000,000 to $10,000,000 on stabilized industrial assets located on the West Coast to 75% LTV on purchases and refinances. No reserves or impounds will be collected with a personal repayment guarantee. Non-recourse debt is also available for a 15 bpt increase in rate. All fixed rate terms carry a step-down prepayment and 30 year amortization for newer assets. No legal, survey, seismic or SPE borrower is required. Three year fixed rate coupons start as low as 4.55%. | | Transaction Size: $1,000,000 to $10,000,000 | | Rate: 3 yr 4.55% to 7 yr 5.40% | | Loan Term: 3, 5, 7 years fixed | | Amort: 30 | | Max LTV: 75% | | Min DCR: 1.25 | | Recourse Negotiable | | Property Types: Industrial | | Prepayment: Step-down | | Geography: West Coast |
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| | | Hot Money | Nationwide On-Book Bridge Program Targets Secondary Markets. An international owner/operator of commercial real estate has launched an on-book bridge program to 80% of value. In addition to addressing major metropolitan markets, their sweet spot are the undercapitalized secondary markets, and will lend in tertiary markets for a strong borrower. This non-recourse lender will capitalized an interest reserve for assets with a below break-even debt service on retail, industrial, multifamily, office and select special use assets. Initial loan terms range from 2 to 5 years with yields based on asset and leverage, but all-in coupons plus fees fall between 8.5% and 10.0%. Transaction loan sizes will range from $15,000,000 to $50,000,000 for a 30 day to 60 day close. | | | 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 | | | Defeasance Prepayment Cost Savings | In the last issue of FINfacts, we discussed defeasance as it relates to prepaying conduit loans prior to their maturity. We also touched on several general areas where a borrower may find cost savings when going through the defeasance process or negotiating their new loan documents. Several points of potential direct and indirect cost savings:
- DEFINITION OF DEFEASANCE COLLATERAL - "Defeasance Collateral" should be defined to include agency securities (e.g., FNMA, FMAC). These securities provide higher yields than U.S. Treasuries and can reduce the cost of the defeasance collateral.
- CALCULATION OF DEFEASANCE - (a) Negotiate the longest open prepayment window possible - up to 180 days. (b) Negotiate defeasance calculated only up to the prepayment window. Typical CMBS documents calculate defeasance through loan maturity even though there is an open window period. Calculating defeasance only up to the prepayment window will allow the borrower to benefit from this window period and not the lender.
- REMOVING CASH FLOW ARBITRAGE IN FAVOR OF LENDER - Remove the cash flow arbitrage in favor of the lender by structuring the defeasance so that payments from the new collateral securities come in at the same time as the payment is due.
- SUCCESSOR BORROWER - After defeasance, "successor borrowers" take the place of the original borrower. They assume responsibility for all payments remaining on loans. It is important for the original borrower to designate who will act as successor borrower to retain the opportunity to benefit from any residual value created by loan portfolio inefficiencies in the securitization.
- BUSINESS DAY CONVENTION - Request monthly payments due on "non-business" days be made on the succeeding and not the preceding day. This expands the universe of eligible securities for defeasance, potentially reducing the cost.
- NOTICE PERIOD - Negotiate the shortest notice period for letting a lender know of the planned defeasance. This gives the borrower maximum flexibility in coordinating any related sale or refinance.
- BUYING SECURITIES FROM PRIMARY DEALERS - Buy U.S. Treasuries or agency securities from primary dealers who purchase these securities directly from the government. Secondary dealers add a mark-up. Borrowers should also negotiate the right to purchase and deliver securities to the lender and not have to deliver cash for the lender to purchase securities at a potentially inflated price.
Navigating the defeasance process is best approached with a knowledgeable and experienced defeasance consultant. Please contact me for other potential cost saving areas or referrals to experienced defeasance consultants. Eric Hamermesh | | | Pascale's Perspective | Capital markets have settled down slightly since last week. The nuclear situation in Japan seems to be under control, the middle east/oil supply situation is still volatile and European "fear factor" is back on rumors that Allied Irish Bank may miss a scheduled bond payment. The Fed did its part by purchasing over $7 billion in Treasuries as part of QE2. This actually led to a decrease in Treasury prices (and a slight increase in yield) due to supply dynamics. US economic fundamentals are improving but "headwinds" add to the fragility of the recovery. CMBS: Credit spreads have widened and the market is still "soft" as originators still "don't know exactly where to price". There is some concern about declining underwriting standards, but originators point out that standards are still much more stringent than the "heyday" of the mid 2000's. Speaking of older CMBS, defaults continue to rise, but bond buyers still are differentiating between old and new.....stay tuned.....David R. Pascale, Jr. | | | Come Grow with Us | 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 and peer support when needed. We invite you to consider a career with George Smith Partners. Please direct confidential inquiries to Todd August, Chief Operating Officer, at (310) 897-2995. |
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©2011 George Smith Partners, Inc. DRE # 00822654 FINfacts is an ePublication of
George Smith Partners, Inc. For Promotional Purposes Only. All Rights Reserved.
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