FINfacts XXI-11

GSPartners

Volume XXI | No. 11 | March 20, 2013

KEY RATE INDICES
Prime Rate	3.25%	1 Month LIBOR	0.20%	5 Yr US Treasury	0.80%	5 Yr Swaps	0.99%
12-MAT	0.18%	3 Month LIBOR	0.28%	10 Yr US Treasury	1.95%	10 Yr Swaps	2.10%
11th Dist COFI	0.96%	6 Month LIBOR	0.45%	30 Yr US Treasury	3.19%

George Smith Partners Welcomes Malcolm Davies as a Principal

The Principals and Professionals of George Smith Partners heartily congratulate and welcome Malcolm Davies as a Principal of GSP. Prior to joining the company in 2011, Malcolm spent 12 years as a real estate developer, investor and capital provider. Mr. Davies has extensive experience with complex financing structures and presenting proposals to and negotiating with debt and equity providers. Much of his professional focus has been on acquisition and disposition financing, recapitalizations and structured buy outs. Co-Founding Principal, Gary E. Mozer notes that “Malcolm brings true value to his customers and GSP thru his knowledge as a developer and relationships in the debt and equity communities”. Please join us in toasting Malcolm as GSPs latest Principal.

Transactions of the Week

Transaction Description:

$23,500,000 Acquisition Financing for a Three Property Hotel Portfolio GSP successfully placed the non-recourse acquisition debt of a Limited Service Hotel portfolio in various Florida locations. The 70% of purchase financing of the three asset portfolio is fixed at 4.45% for five years, amortized over 25 years.

Challenge: The 70% loan-to-purchase sized to a 10.5% debt yield. Both metrics push the limit of aggressive underwriting guidelines and are virtually without precedent for limited service hospitality post financial market melt-down. All three subjects are impacted by a seasonality component.

Solution: Spreads tightened significantly during our due diligence process and GSP was able to negotiate an “all-in” coupon 40 basis points below the application floor. Although the debt yield remained constant, the lower coupon reduced the debt service and improved the debt coverage ratio. GSP addressed the seasonal cash flow fluctuations by structuring a reserve that burns down by a certain percentage each time the Borrower hits a minimum cash flow hurdle during the off-market months. This format mitigated the lender’s risk while minimizing trapped cash for the Borrower.

Rate: 4.45%

Term: 5 Years

Amort: 25 Years

LTC: 70%

Non-recourse

Lender Fee: Par

Brokers: Gary E. Mozer, Katie Rodd

Transaction Description:

Short-Term Leased Single Tenant Industrial Investment GSP successfully arranged the rate & term refinance of a single tenant industrial building to 63% loan to value. The tenant has 2 years remaining on their lease although the borrower was looking to take advantage of today’s low rates and fix his coupon for 7 to 10 years. GSP secured a 7 year fixed term with 25 year amortization at 3.89%. The loan adjusts to a floating rate at then market conditions after the 7th year. There is no balloon.

Rate: 3.89% Fixed for 7 Years

Term: 25 Years

Amort: 25 Years

LTV: 63%

Recourse

Broker: Salar Royaei

Hot Money

Nationwide Non-Recourse Bridge & Mini-Perm Program from $1,000,000 to $15,000,000. GSP is working with a national balance sheet bridge-loan provider advancing to 70% of purchase price/65% on refinances on a non-recourse basis. This nationwide program targets reposition assets in major metropolitan markets. This capital provider will advance to 100% of good news dollars going forward beyond the initial funding. Note purchase financing will be considered for performing, non-performing and distressed transactions. Assets will be B quality or better, although sponsor qualifications are less stringent. Pricing from the 6% to 7% for 3 to 5 years. Larger Class A assets may qualify for a coupon in the high 5% range. All transactions are interest only with one point origination and one point upon exit.

Hot Money

Hospitality – All stages of the Capital Stack Hotel capital is making a renewed resurgence. As capital continues to chase core assets down to tight yields, GSP is working with a debt fund willing to accept more risk in exchange for a wider return. As a portfolio owner of hospitality, their focus is exclusively hotels, but in every segment of the capital stack; senior/mini-perm notes to 75% w/sub-10% debt yield, mezzanine/pref equity, Joint Venture Equity. DPOs and bridge/reposition requests are considered below break-even coverage. Transactions must size for a minimum of $15,000,000 and assets must be in a Top 50 MSA market. Debt pricing starts at 6.75% so not competitive with the CMBS market on rate but will fund further up the capital stack and accept more risk than most Wall Street underwriters.

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

Cyprus Fear Factor: Markets roiled last week as the tiny nation of Cyprus brought back the “fear factor.” Treasuries rallied on the flight to quality. Anytime the phrases “run on banks”, “bank failure”, etc. are bandied about, market volatility rises. The issue isn’t the size of Cyprus financial system, it’s contagion risk and unknown derivative exposure. Fed Chairman Bernanke soothed markets today with assurances that QE3 bond buying will continue for the time being. Interestingly the Chairman rejected the concept of using the stock market rally as a sign to ultra-accommodative policies (the Fed is watching employment, not equity prices). There is a general feeling now that Cyprus will resolve its issues, perhaps with aid from Russia. The proposed deposit tax, subsequent massive protests and parliament’s rejection of said tax may be an indicator that in this case, the “social contract” is worked, as politicians responded to the people’s will. But what is next? If Cyprus defaults and exits the Euro, then there may be some further market turmoil. …stay tuned… David R. Pascale, Jr.

FINfacts Newsletter XXI-11

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