FINfacts XXI-7

GSPartners

Volume XXI | No. 7 | February 20, 2013

KEY RATE INDICES
Prime Rate	3.25%	1 Month LIBOR	0.20%	5 Yr US Treasury	0.86%	5 Yr Swaps	1.02%
12-MAT	0.18%	3 Month LIBOR	0.29%	10 Yr US Treasury	2.01%	10 Yr Swaps	2.04%
11th Dist COFI	1.07%	6 Month LIBOR	0.47%	30 Yr US Treasury	3.20%

Transactions of the Week

Transaction Description:

$3,350,000 Garden Style office in Secondary Market George Smith Partners successfully replaced a hard money loan with institutional debt on an underperforming garden style office building in Southern California. The prior loan had ballooned although the Borrower had yet to complete his re-stabilization plan for the asset. While cash flow is available from current occupancy, all proceeds went to servicing the high-yield debt with no TI allowance to maintain the Sponsors’ lease-up momentum. The new bridge loan cleaned up all the partnership invoices and allows for the necessary cash flow after debt service for the asset to support itself on a go-forward basis. Terms are 6.50% fixed for three years, amortized over 25 years to 65% LTV.

Challenge: The Borrower had invested all available personal liquidity to carry the property and re-lease the asset from its’ 20% physical occupancy two years ago, to the 62% at funding. Most conventional debt lenders were concerned with the lack of remaining liquidity combined with the secondary market location. The debt coverage ratio at funding qualifies the asset for perm debt today, although the physical occupancy will not meet the standards of a perm-loan underwriter without additional leasing.

Solution: GSP identified a portfolio lender actively funding cash flowing assets in secondary and tertiary California markets. Several site visits with the Borrower confirmed demand at a very low cost basis. Two existing tenants were looking to expand into larger space upon completion of minor TI work. Ample cash flow to complete the reposition of the asset was proven once the mortgage constant was reduced by 40%.

Rate: 6.5%

Term: 3 Years

Amort: 25 Years

LTV: 65%

Prepayment: None

Recourse

Lender Fee: 1 point

Broker: David Stepanchak

Transaction Description:

$1,800,000 Cash-Out Refinance of a Strip Retail Center George Smith Partners successfully placed the $1,800,000 refinance of a 32,260 square foot unanchored retail asset in Northridge, California. The new loan included a return of capital component for the Borrower. This non-recourse loan self-liquidates and is fixed for the entire 10 year term at 4.25%, but provides for a step-down prepayment penalty.

Challenge: The Sponsor had 10 years remaining on a high interest rate/fully amortizing loan. They requested a return of equity, but without extending the payment term or negatively impacting their cash flow after debt service. The Borrower requested non-recourse capital but required flexible prepayment options for the fixed rate term. This is the only commercial asset for this Borrower, adding to the complexity of the loan request as many portfolio lenders look to more experienced owners and operators.

Solution: GSP was able to design a unique loan structure that was tailored to the Sponsors desire to dramatically lower their interest rate while maintaining the same loan term. Mr. Shaffer was able to identify a San Fernando Valley capital provider who knew the location and was comfortable to offer a cash-out to a less-than experienced Borrower on a non-recourse basis.

Rate: 4.25%

Term: 10 Years

Amort: 10 Years

LTV: 50%

Prepayment: Step-down

Non-recourse

Broker: Bryan Shaffer

Hot Money

Small Loan Platform GSP is actively funding California transactions to $3,000,000 for multitenant retail, office and industrial assets. Loans are sized to 70% of value with rates as low as 4.0% fixed for five years of the ten year term. Amortization can be pushed out to 30 years. Prepayments vary but are typically a step-down as opposed to a yield maintenance calculation. A personal repayment guarantee will be required.

Hot Money

Bridge to CMBS exit George Smith Partners is originating Bridge/Reposition to Perm loans for transactions $15,000,000 and up, nationwide. Bridge/Reposition assets may cash flow below breakeven (require an interest reserve) at funding and are underwritten based on the borrowers’ business plan to bring the asset to stabilization. Pricing is LIBOR plus 500 to 650 with an origination fee and exit fee: the exit waived upon rolling it into their perm. Traditional CMBS loans are underwritten from $5,000,000 to an 8% debt yield for multifamily, 8.5% for commercial and 11% on limited service hospitality.

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.

Speakers Corner

GSP Co-Founding Partner Gary M. Tenzer will moderate the "Traditional Debt General Session" panel during the ICSC Capital Markets West Conference on Tuesday March 5th. The event will be held at the InterContinental Hotel in Century City. Registration information and panel details; as well as other event topics may be found here.

Pascale’s Perspective

QE3 won't last forever? Equity markets were disappointed today as the release of recent Fed minutes indicated dissent among the members on continuing the massive bond purchases. Markets focussed on several members expressing a desire to curtail or stop the program even before economic/employment conditions improve. They are concerned about inflating the Feds balance sheet beyond a perceived tipping point where inflation spirals out of control and deleveraging (selling the bonds back into the private sector) may have unintended consequences such as debasing all debt bonds. Today's sell off indicated that markets still are afraid of "taking off the training wheels" and seeing the economy "sink or swim" without the many extraordinary measures implemented by governments and central banks. …Stay tuned... David R. Pascale, Jr.

FINfacts Newsletter XXI-7

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