GSPartners
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Volume XX | No. 49 | December 19, 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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0.21%
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5 Yr US Treasury
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0.77%
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5 Yr Swaps
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0.88%
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12-MAT
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0.17%
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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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1.80%
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10 Yr Swaps
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1.85%
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11th Dist COFI
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1.01%
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6 Month LIBOR
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0.52%
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30 Yr US Treasury
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2.99%
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| | | Transaction Description: | | $13,000,000 Joint Venture Equity, “For-Sale Condominiums” GSP’s secured the $13,000,000 Joint Venture equity investment for the ground-up re-development of a Carlsbad luxury condominium project. Malcolm Davies developed an ‘Equity Introduction Program’ to marry the needs of sponsors requiring equity capital with investors prior to a ‘pre-identified’ project to lay groundwork and help mold a mutually agreeable platform. The program objective is to expedite the ‘chase to equity’ on a project level once the asset has been identified. Equity relationships inherently take time to mature, particularly as we continue in the recovery cycle of the real estate market. Mr. Davies introduced the capital to the developer several months prior to the introduction of this opportunity. |
Challenge: Our Sponsorship acquired an existing 51-Unit Apartment community in Carlsbad, California. The purchase included entitlements for the construction of a 35-Unit luxury condominium property. Traditional acquisition capital to acquire the apartments was insufficient to proceed with the re-development plans of demolishing the existing buildings and proceeding with the construction of the condominiums. |
Solution: The prior relationship established through GSP’s ‘Equity Introduction Program’ allowed the Sponsorship to quickly secure the equity investment and provide the needed capital for the Developer’s luxury condominium project. The new Joint Venture provided all of the needed equity capital to develop the opportunity. |
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| | | Transaction Description: | | $5,500,000 Non-Recourse Bridge Acquisition Reposition Loan for Utah Apartments GSP arranged acquisition debt financing for a 1980's vintage, 96 unit under-managed apartment community in West Valley, Utah. The Southern California based Borrower requested $5,000,000 in immediate funding for the purchase and an additional $500,000 in reserves to cover renovation costs and capital improvements. |
Challenge: The Borrower required high leverage non-recourse financing with a flexible prepayment schedule to execute a renovate-and-flip business plan to achieve required fund returns. The combination of the loan size coupled with a non-recourse, flexible prepayment structure and 90% total loan to contract purchase price significantly narrowed the potential lending pool. |
Solution: GSP leveraged existing capital relationships to structure a sub-6% coupon to 75% of total cost. Future draws are provided as reimbursement for work completed (no interest on future funds until disbursement and no performance hurdles). GSP also structured a minimal yield maintenance period. Extensive knowledge of the lender’s due diligence process led to a streamlined period of approximately 30 days from signed term sheet to closing, allowing the borrower to close comfortably in advance of the property acquisition deadline. |
| | Rate: L+450 w/5.75% Floor | | Term: 3 Years+Two-1 Year Options | | Amort: Interest Only | | LTC: 90% LTP; 75% of Total Cost | | Prepayment: 12 months Yield Maintenance then open | | Non-recourse | | Lender Fee: 1.0% | | Brokers: Gary E. Mozer, Katie Rodd |
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| | | | Fannie Mae Competition Heats Up! The push to acquire more of Fannie Mae’s market share continues to heat up as local and regional banks have once again, sharpened their pencils on rate, structure and speed of execution. GSP is working with a regional bank that has recently reduced rates while simultaneously relaxed underwriting criteria to win more business away from the agencies. Full-leveraged 75% transactions start a 3.6% fixed for three years to 4.35% fixed for 10 years. All products are 30 due in 30 self-liquidating: there is no balloon risk. Prepayments are step-down but open the last 90 days of the fixed term. There is no prepayment once the loan rolls into the floater. Common sense underwriting expedites the process with closing routinely occurring within 40 days from receipt of an executed application. Transactions from $750,000 to $10,000,000 are considered in 10 western states with MSAs of 250,000 or more. Class C assets will be considered for strong sponsors. |
| | | Hot Money | Bridge + Mezzanine & Preferred Equity GSP is placing transitional loans with a $55B private equity firm nationwide. Non-recourse loan requests over $10,000,000 will be underwritten up to 80% of cost (including reposition costs). Cash flow must be present at close as a minimum 6.5% going-in debt yield is required. Pricing starts in the low 5% range based on risk for a three to five year term. Core products plus student housing and self-storage will be considered. The same fund will offer mezz/pref equity behind their own first or an alternative capital source. Transactions over $5,000,000 will be structured to an actual 1.0 (breakeven) DCR at close with an 8% current pay, allowing for an accrual to 12%. | | | 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 |
December 21st 2012: Did the Mayans predict the fiscal cliff? Usually this is a quiet time in capital markets, but year-end promises to be fraught with drama as the cliff negotiations look like they are going down to the wire. Treasuries sold off yesterday as a deal seemed imminent and then rallied slightly today as a more combative tone emanated from Washington. The 10 year is at 1.81%. The possible outcomes are varied: (1) No deal by January 1; the cliff “triggers” are thrown, and the US goes into a possible recession; (2) A short term deal without a debt ceiling agreement, guaranteeing another brinksmanship clash in 3-6 months; (3) A combined cliff and debt ceiling deal; (4) A comprehensive deal that includes major structural deficit reduction going forward (best for markets but least likely)….Commercial lending spreads remain tight throughout, with CMBS rally predicted to go into next year and portfolio lenders setting up large allocations for 2013….Europe? With all the attention on the cliff this month, there has been little discussion of Greece’s hugely successful bond buyback that started in early December and was just completed. Greece actually went into “controlled default” as they purchased back about 30 billion Euros of sovereign debt at below par, S&P actually rated the sovereign at “SD” (Selective Default). The entire process went smoothly and Greece was actually upgraded by S&P this week. It is significant that bondholders took discounts and world markets and particularly derivative/swap desks were not plunged into disarray, a good sign for Europe’s long slog back to solvency (hopefully). ...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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