FINfacts XXI-4

GSPartners

Volume XXI | No. 4 | January 30, 2013

KEY RATE INDICES
Prime Rate	3.25%	1 Month LIBOR	0.20%	5 Yr US Treasury	0.87%	5 Yr Swaps	1.01%
12-MAT	0.18%	3 Month LIBOR	0.30%	10 Yr US Treasury	2.00%	10 Yr Swaps	2.06%
11th Dist COFI	1.00%	6 Month LIBOR	0.48%	30 Yr US Treasury	3.18%

Transactions of the Week

Transaction Description:

$20,500,000 Customized Multifamily Cash-Out Bridge/Reposition Bryan Shaffer of George Smith Partners successfully placed the $20,500,000 refinance of a San Diego California multifamily apartment community. The bridge loan included a return of equity of $7,000,000 to solve a long-term dispute between the partners. The non-recourse cash-out refinancing allowed family trust issues to be settled at a high 85% LTV leverage with low LIBOR based pricing on an interest only basis.

Challenge: A highly leveraged loan with a virtual break-even DCR constraint was required to settle this partnership dispute. Agencies declined the request due to its lengthy ownership story. Credit and complex trust issues deadlocked the partners' decision-making capacity.

Solution: Utilizing GSP’s long-term capital relationships and Mr. Shaffer’s experience with complex partnership structures, GSP was able to construct a customized bridge loan and place it with a unique REIT lender. The Lender identified with the new borrower ownership structure and was comfortable providing the additional capital to solve the assets’ management issues. Without GSP's involvement, the transaction would have been grid-locked in litigation due to the complex partnership strife and features of the loan request.

Rate: LIBOR+4.50%/Floored at 5.67%

Term: 2 Years + Options

Amort: Interest Only

LTV: 85%

DCR: 1.05

Prepayment: 18 Month Lock then open

Non-recourse

Lender Fee: Par

Broker: Bryan Shaffer

Transaction Description:

$7,444,500 Acquisition of a Los Angeles Mixed-Use Brick Building Shahin Yazdi placed the 70% of purchase acquisition loan on mixed-use, brick building in the mid-Wilshire district of Los Angeles. The $7,444,500 loan is fixed for seven years at 4.25% and offers a step-down prepayment penalty. There is no balloon date as the loan will self-liquidate over its’ 30 year term.

Challenge: The Borrower did not currently own any other Multi-Family assets. Property inspections uncovered significant deferred maintenance. The acquisition required a year-end close with only 40 days for due diligence including Thanksgiving, Christmas and New Years’. The loan request per unit was high for a typical brick asset. Brick buildings are not looked at favorably in California.

Solution: The lender agreed to focus on the management team hired to operate the day-to-day activities in order to augment the Borrowers’ lack of real estate experience. A life/safety reserve account was added to the loan structure to address deferred repair items. An extensive remodel business plan added comfort to the underwriters’ maintenance concerns. GSP was able to facilitate a rushed on all 3rd party reports despite the holidays meet the loan closing timeline. The historic/unique style and structure of the building that offered off-street parking supported the loan value. The building had been retrofitted with shear walls/lateral beams for further earthquake resistance.

Rate: 4.25% Fixed for 7 Years: LIBOR+235 for 23 Years

Term: 30 Years

Amort: 30 Years

LTC: 70%

DCR: 1.20

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

Broker: Shahin Yazdi

Hot Money

California Construction to $30,000,000 More and more banks are re-entering the construction market, demonstrating a new confidence in our economy and an expanding capacity to put deposit funds to work. GSP is working with a California Regional Bank reviewing ground-up construction request for core assets state wide. Hospitality will be considered on a very select basis for in-fill locations. Requests will range from $1,000,000 to $30,000,000 sized to 65% of cost priced at Prime + 1%. All non-multifamily assets will require significant pre-leasing.

Hot Money

National Debt Fund Recapitalized A national bridge debt provider has recently recapitalized and is aggressively funding reposition transactions with a mandate to put $400,000,000 out into the market over the next 12 months. Senior notes will range from $10,000,000 to $25,000,000 for 2 to 5 year terms. Pricing is not programmatic and will vary widely depending on risk and leverage. Transactions to 85% of cost will be considered. All product types including land and condo inventory will be underwritten. Ground-up construction requests will also be considered. Recourse is deal specific although completion guarantees will be required for construction transactions.

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

What about that GDP? Investors were shocked, but did not panic, at today’s surprising announcement that US GDP shrunk in 4Q 2012 by 0.1%. Most economists were predicting a 2 or 3 percent rise. However, this news did not stop the recent “risk on” trading of recent weeks as investors moved out of Treasuries and into stocks and riskier bonds. The 10 year T rose to 2.02%, the first move above 2% since April 2012. Dow is nearing its all time high as the “fear factors” are subsiding on the belief that Europe is past its crisis point (although not out of the woods), China’s not going into recession, etc. What about the US GDP? Markets were not dismayed when they peeked behind the numbers: consumer spending and business investment were strong, markets closely watch these factors. Weakness was due to defense spending drop (partly due to US Gov fiscal year timing and sequestration threat), Hurricane Sandy (the Fed referred to this as a “transitory factor”), a drop in business inventories (which may mean that business’ underestimated a rise in spending). To top it off, the Fed chimed in with their announcement to keep the discount rate at near zero and continue the quantitative easing program for the time being. All-in loan rates are up slightly as any tightening of spreads is not keeping up with the run up in treasuries. ...Stay Tuned… David R. Pascale, Jr.

FINfacts Newsletter XXI-4

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