FINfacts XXI-2

GSPartners

Volume XXI | No. 2 | January 16, 2013

KEY RATE INDICES
Prime Rate	3.25%	1 Month LIBOR	0.21%	5 Yr US Treasury	0.74%	5 Yr Swaps	0.86%
12-MAT	0.18%	3 Month LIBOR	0.30%	10 Yr US Treasury	1.82%	10 Yr Swaps	1.85%
11th Dist COFI	1.00%	6 Month LIBOR	0.50%	30 Yr US Treasury	3.01%

Transactions of the Week

Transaction Description:

$17,500,000 (65% LTV) Cash-Out Refinance of Class B- Mixed Use/Retail & Office GSP successfully placed the cash-out refinance ($10,000,000 cash out) of two twin, mid-rise, Class B- retail & office towers located adjacent to Downtown Los Angeles, California. The 348,561 sf buildings house an 80,000 sf department store and two stories of executive suite office space. The 10 Year non-recourse loan sized to a 9.1% Debt Yield and priced at SWAPs + 300, 4.70% at funding, amortized over 30 Years.

Challenge: The Class B asset quality and location eliminated most portfolio lenders from consideration. Over 60% of the building is occupied by a non-credit tenant, whose lease expires six years into the loan term, presenting a substantial turnover risk for any capital provider. An 8,000+ sf tenant un-expectantly went dark weeks before closing.

Solution: GSP mitigated the asset quality, location and roll-over risk by proving the in-place cash flow as below current market rates. The anchor tenant agreed to extend their lease beyond the loan term prior to funding; that in conjunction with their financial strength along with a long strong building operating history added comfort to the underwriter. GSP structured a $1,000,000 earn-out reserve accessible to the Borrower upon releasing the 8,000 sf ground floor retail space.

Rate: 4.70%

Term: 10 Years

Amort: 30 Years

LTV: 65%

DCR: 1.44

Prepayment: Defeasance

Non-recourse

Lender Fee: Par

Brokers: Gary M. Tenzer, Bryce Overend

Transaction Description:

$5,019,000 Refinance for Illiquid Borrower Shahin Yazdi placed the $5,019,000 rate and term refinance of a 96% occupied Southern California in-line retail asset. The loan is fixed for seven years at 4.50%, amortized over 25 years and offers a step-down prepayment penalty.

Challenge: The Borrower only had one month of debt service in liquidity, far below the typical six months required. The asset is leased to local tenants with no credit or national brand name recognition. All leases roll within the next three years. A 50 day close was required regardless of the Thanksgiving, Christmas and New Year’s holidays.

Solution: The new lender was very comfortable with relying upon the asset to serve as the sole source of repayment. GSP provided ample rental and occupancy comparables to support the strength of this asset. All current tenants have longevity at this location and have consistently renewed their leases at termination. Underwriting was further supported by a very long and stable historical cash flow under the current Borrower ownership. 3rd party reports were rushed and all parties agreed to work diligently through the holidays. The loan funded within 40 days of receipt of an executed application.

Rate: 4.50%

Term: 7 Years

Amort: 25 Years

LTV: 65%

DCR: 1.35

Prepayment: 5,4,3,2,1, open

Broker: Shahin Yazdi

Hot Money

Ten-Year Fixed Regional Bank Portfolio Lender w/Step-Down Prepay George Smith Partners is working with a Regional Bank actively ramping up their commercial real estate portfolio as economic metrics continue to stabilize. Applications fully executed with deposits posted by March 31st will qualify to receive a 3.25% start rate for two year before adjusting up to 4.50% for the remaining 8 years of the fixed term. Transactions of up to $10,000,000 will be sized to 75% for multifamily, 70% for most commercial assets and 65% for unanchored retail. All California major metropolitan markets will be considered. The recourse loan will carry a 5-5-4-3-2 prepayment penalty.

Hot Money

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.

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

In The Press

GSP Managing Director David Rifkind was recently quoted in the January edition of Globe Street. The lack of significantly sized pools of distressed assets has brought on a re-tooling of Opportunity Funds from acquiring high risk/high yield notes, to purchasing of Trophy Properties in Gateway Cities. More of Mr. Rifkind's observations may be found on-line here.

Pascale's Perspective

2013: The recovery should continue, if the next round of crises can be averted….. CRE: Lenders and Investors are bullish: (1) CMBS issuance is estimated to rise 40% from 2012’s rebound; (2) Life Companies have boosted allocations, several have allocated $2-$4 billion each for commercial; (3) Banks continue to heal and look for yield, coming up with new structures; (4) Agencies (Fannie/Freddie/HUD) are “running at full capacity”, (4) Debt Funds getting more aggressive, expanding their strike zones; (5) Public and Private Equity getting in back in the game with “real world” yield expections…. What could go wrong? Not much, but possibly major credit market disruptions stemming from: debt ceiling brinksmanship… government shutdown… US sovereign default… sudden massive spending cuts from sequestration… Rating agency downgrades of the USA…..did I miss anything? ...stay tuned... David R. Pascale, Jr.

FINfacts Newsletter XXI-2

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