GSPartners
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Volume XX | No. 38 | September 26, 2012
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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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0.22%
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5 Yr US Treasury
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0.64%
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5 Yr Swaps
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0.79%
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12-MAT
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0.15%
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3 Month LIBOR
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0.36%
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10 Yr US Treasury
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1.65%
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10 Yr Swaps
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1.71%
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11th Dist COFI
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1.09%
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6 Month LIBOR
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0.65%
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30 Yr US Treasury
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2.84%
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| | | Transaction Description: | | $7,850,000, 40 Unit Ground-Up Apartment Construction Loan, Los Angeles, California GSP arranged the financing for a 40 unit ground-up apartment development in Hollywood, California. The developer had assembled the land over a period of years, and originally intended to develop a “For-Sale” building. Because of the strong demand in the Hollywood market, coupled with a comparatively low basis in the land, the Borrower was able to attract private, passive JV equity to co-invest in the transactions. |
Challenge: The Borrower’s previous construction projects were financed by a bank that had stopped lending on construction following the credit crises. While the previous projects were successes, the Borrower struggled to attract debt without a clear pipeline of future projects and the personal capital to build out all of the proposed developments. The Borrower’s private equity sources were reluctant to sign full personal repayment guarantees. |
Solution: GSP worked with the Borrower to demonstrate a clear pipeline of projects based on existing assets and future business plans. The Borrower was able to secure capital partners through his private network. The new investors agreed to sign on the current loan but only in a secondary position after all other remedies for cure have been solved. This bolstered financial strength of the request, combined with a clear pipeline of future business gave the lender sufficient confidence to proceed with the loan. To shield the private investors, GSP negotiated a several pro-rata recourse agreement for the investors to a capped amount, which is significantly less than the loan amount. This gave the investor partners comfort that they are not exposed to the full repayment guarantee. |
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| | | Transaction Description: | | GSP Closes $3,075,000 Interest Only Purchase Money Bridge Loan on a Baldwin Hills 52-Unit Apartment Portfolio George Smith Partners placed a $3,075,000 (75% Loan to Purchase Price) bridge loan on a 3-property apartment portfolio in Baldwin Hills, California. The borrower plans on renovating and turning a significant portion of the 52 units, and requested a loan with no prepayment. GSP secured an Interest Only Loan at 3.25% (Prime+0), 12-month term, with no prepay, at 75% loan to cost. |
Challenge: The Borrower requested high leverage bridge money for properties with occupancy and collections in the low 80% range. This is typically problematic as lenders prefer to use in-place income and/or a vacancy factor on the in-place collections. The location of the property was also challenging since many of the higher leverage institutional sources have more difficulty offering bridge money in weaker markets. |
Solution: GSP was able to demonstrate that the lack of collections and amount of deferred maintenance was a direct result of poor historical management and not an underlying consequence of a weak market. GSP also worked with the borrowing entity to present the lender with a resume of past successful business plans in the area. Ultimately the lender trusted the ability of the borrower to execute renovation and re-stabilization of the property and provided the client with aggressive rate and terms. |
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| | | | Institutional 7-Year Fixed Rate Portfolio Lender to 75% LTV w/No Prepayment Penalty GSP is funding 3, 5 and 7 year fixed rate loans on stabilized assets with a California based portfolio lender with no prepayment penalty. This institutional lender will fund in the eight Western States (excluding Nevada & Arizona) from $2,000,000 to $10,000,000 on multifamily and commercial assets to 75% of value. In place cash flow must support a 1.20 dcr for multifamily or 1.25 dcr on commercial assets. Rates will start from 4.25% for five year fixed funds to 4.80% on a seven year term. |
| | | Hot Money | Closed End Fund for $3,000,000 & Up Joint Venture Opportunities. GSP is working with a fully discretionary equity fund for Joint Venture requests as small as $3,000,000. Requests as high as $40,000,000 will be considered for three to five year hold periods. High teens returns are sought for a 1.5x to 1.7x multiple. Ground-up construction will only be considered with substantive pre-leasing, although reposition bridge transactions do not require cash flow in place at closing. Asset classes may include the four core property types as well as self-storage, data centers, seniors/assisted housing, and/or hospitality. The top 12 metros will be targeted on a national level. Secondary and tertiary markets will not be considered. | | | If you have an inquiry regarding George Smith Partners' commercial real estate financing, please contact your GSP representative or Todd August, Chief Operating Officer, at (310) 867-2995 or TAugust@GSPartners.com. | | | Pascale's Perspective | Treasury Bonds rallied with yields in the low 1.60% range on the 10 year. Treasury prices gained for 8 straight days, the longest period since December 2008. So any thoughts that the “long bond rally is finally over” were dashed. Why? Investors went for the safe haven as Spain struggled with its 2013 budget with the backdrop of austerity protests. The announcement today that a new austerity is being announced caused some selling, finally, yields popped up to 1.65%. CMBS: CMBS bonds have been selling well, so spreads are hanging tight. There was reluctance by investors to accept AAA yields below 3%, the appetite for risk has bond buyers accepting yields in the 2.50-2.75% range. The investor appetite is described as “deep among all classes”, so watch for more competition for new transactions. ...stay tuned… David R. Pascale, Jr. |
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©2012 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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