FINfacts Newsletter XXI-26

Volume XXI  |  No. 26  |  July 10, 2013   Letter to the Editor KEY RATE INDICES Prime Rate  3.25% 1 Month LIBOR  0.19% 5 Yr US Treasury  1.46% 5 Yr Swaps  1.62% 12-MAT  0.16% 3 Month LIBOR  0.27% 10 Yr US Treasury  2.62% 10 Yr Swaps  2.85% 11th Dist COFI  0.95% 6 Month LIBOR  0.41% 30 Yr US Treasury  3.65%     Transactions of the Week Transaction Description: $8,500,000 Non-Recourse Acquisition for a 96-Unit Class B Apartment to 88% of Purchase GSP successfully placed the acquisition debt on a 1970’s vintage, 96-unit multifamily property in suburban Salt Lake City. The $8,500,000 non-recourse senior note represented 88% of the initial purchase price. The collateral includes excess acreage that will be released for the developed of additional units in the future. The interest only three year term loan floats at LIBOR plus 5.8%. Challenge: Sponsor requested high leverage non-recourse debt but required flexibility to release and develop the excess land. The parcel release will reduce the lender’s collateral that at 88% of capitalization, is already above normal leverage thresholds. Solution: GSP worked with the lender to structure a minimum release price for the excess land based on the appraised unentitled value at closing and a minimum 85% loan to value post-release during the first 18 months of the loan term and minimum 80% thereafter. This structure allows the sponsor to capitalize on increased cash flow on the existing units due to business plan implementation and minimizes the equity contribution necessary to rebalance the loan upon release of the development parcel. Rate: L+5.80% w/0.50% LIBOR Floor Term: 3 Years+2 One-Year Options Amort: Interest Only LTC: 88% Prepayment: 18 Month Spread Maintenance Non-recourse Lender Fee: 1.0% Advisors: Gary E. Mozer, Katie Rodd Transaction Description: $2,600,000 Cash-Out Refinance of a 3-Property Multifamily Portfolio GSP successfully placed the cash-out refinance of three multifamily San Fernando Valley properties. The three property portfolio consisting of 45 units funded in two separate loans. The self-liquidating loans are fixed for 5 years at 4.28% before floating over LIBOR for the remainder of the 30 year term. A recent Sponsor foreclosure and pending lawsuit hampered the credit process although GSP was able to identify a capital provider willing to underwrite the Sponsor’s explanation. Rate: 4.28% Fixed for 5 Years Term: 30 Years Amort: 30 Years LTV: 55% Prepayment: 5,4,3,2,1 open Recourse Lender Fee: Par Advisor: Jason Gaffner Hot Money National Bridge Debt from 2.20% GSP identified a national money center bank funding reposition transactions from $15,000,000 to $80,000,000 starting as low as LIBOR + 2.00%. Core assets are considered along with hospitality, student housing and some special use. Non-recourse is available subject to project quality and in-place cash flow. Transactions are sized to 75% of total capitalization. Sub-1.0 DCR is funded with an interest reserve. Hot Money SoCal Portfolio Lender Re-enters the Construction Market A prominent Southern California capital provider with a clean balance sheet has re-entered the ground-up construction market. Requests to $10,000,000 will be considered for core assets plus a wide array of special purpose uses including GSA leases, restaurants/fast-food, auto-repair, childcare & flagged hotels for investors or owner/users. The recourse loans are available state-wide and rates are loan specific. Bridge and mini-perm programs for these same products are also available for well supported borrowers. 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 Value Add Financing: Show Me the Money Many sponsors produce a conservative pro forma in value add transactions and casually note they expect stronger returns.  It’s like a car salesman starting out by saying that the airbags are the finest in its class, and casually noting the brakes are pretty good too.  This approach while practical, does the opposite of conveying diligence to lenders and prospective investors alike.  When you know your market, you stand out among other sponsors and projects.  Don’t be afraid to be bold when you have the analysis to support your business plan and exit strategy.  Lenders prefer to see the upside in relation to the risk profile.  Rest assured, the lender will ask for your break even analysis.  The majority of bridge loan options are priced over LIBOR, an index that has not been impacted by the Treasury movement this past month.  With historically low rates on bridge pricing, it is a fantastic opportunity to take advantage of a market that looks reliable and predictable again.  Be optimistic in your opportunistic deals.  Ameet Chagan Treasuries and CMBS, calming down?……    Last Friday’s job report and massive selloff on a thinly traded semi-holiday sent the 10 year yield up to 2.77%.  This week has seen some rallying resulting from a new “down the middle” 10 year auction yesterday and today’s calming words from the Fed Chairman…..  The yield today is 2.62%.  CMBS seems to be firming up with good bidding on new issues.  Bernanke said: (1) Continued “accommodative policy” is appropriate; (2) Actual raising of short term interest rates is still a long way off, not until unemployment is at or below 6.5% (note that a recent influx of job seekers re-entering the job market is “raising the denominator” and will make it tougher to lower the rate; (3) Bond buying could continue if the economy falters; (4) Ben in “Superhero” mode?  Regarding the rise in interest rates in anticipation of tapering, “we’ll have to push back against that”  ……stay tuned…..  David R. Pascale, Jr ©2013 George Smith Partners, Inc. DRE # 00822654 FINfacts is an ePublication of George Smith Partners, Inc. For Promotional Purposes Only. All Rights Reserved.