GSPartners
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Volume XXI | No. 35 | September 11, 2013
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KEY RATE INDICES
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Prime Rate
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3.25%
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1 Month LIBOR
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0.18%
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5 Yr US Treasury
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1.71%
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5 Yr Swaps
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1.87%
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12-MAT
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0.15%
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3 Month LIBOR
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0.26%
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10 Yr US Treasury
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2.91%
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10 Yr Swaps
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3.07%
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11th Dist COFI
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0.95%
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6 Month LIBOR
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0.39%
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30 Yr US Treasury
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3.84%
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| | | Transaction Description: | | 93% Loan to Cost; $48,225,000 Debt & Preferred Equity 349 Unit Construction GSP arranged $39,450,000 in first mortgage debt and $8,775,000 in preferred equity for the ground-up construction of a 349 unit Class A Los Angeles apartment campus. The total capitalization represents 93% of budgeted cost. Although Sponsor cash was limited to 7% of the capital stack, the non-recourse Preferred Equity has a fixed coupon and does not participate in the “upside” and does not carry a requirement to sell upon stabilization. The limited recourse on the senior tranche burns down at Certificate of Occupancy while the interest rate steps down upon obtaining DCR hurtles. |
Challenge: The project will be the first institutional sized community constructed in this market in the last 20 years. Demand for new upscale product is untested. Although the Sponsors have experience at prior companies, this is only their second independent development as principals. |
Solution: GSP stressed the project’s competitive land basis attributable to long term options by the Sponsor and value added through the entitlement process. The low basis made the capital providers more comfortable with the untested market as return hurdles are more easily achievable. The Sponsor assembled a best-in-class project team to provide design and construction expertise. |
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| | | Transaction Description: | | Marathon Industrial Acquisition Transaction GSP placed the acquisition financing for the purchase of an industrial building in Sun Valley, California. With an August 2012 engagement, this assignment took one year to fully execute. The 5.0% fixed rate term self-amortizes over the life of the loan and opens to prepayment after the 5th year. |
Challenge: The property presented multiple issues uncovered by inspections and environmental reports. Interest rate fluctuations added a nervous component to the transaction as any run-up in rate may have resulted in eroded loan proceeds. |
Solution: The seller was motivated to sell and to remediate all the issues, knowing that every other purchaser will have the same concerns if this escrow was cancelled. GSP’s expertize was vital in orchestrating the numerous moving pieces and avoid additional pit-falls created from the time delay. GSP kept buyer and seller abreast of market rates and terms on an almost daily basis. This flow of communication helped mitigate concern as both buyer and seller were able to track underwritten proceeds on a consistent basis. |
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| | | | Bridge/Reposition loans for Core and Non-Core Assets GSP is funding larger bridge transactions from 3% nationwide. Interest reserves may be funded to address sub-1.0 cash flowing request to 80% of value. Non-recourse is available on lower leveraged assets. The LIBOR based loans include core product types as well as hospitality, self-storage and student housing. Multi-family ground up construction will be considered on an exclusive basis. Loan requests from $10,000,000 will be considered. |
| | | Hot Money | Hospitality PIPs and FF&E GSP identified a national capital provider funding Property Improvement Programs and Furniture, Fixtures & Equipment to upgrade flagged hotels to 100% of cost. All flags will be considered. The recourse loan is collateralized by a pledge of partnership interest. 2nd year proforma cash flow is underwritten to an “all-in” 1.25 debt coverage ratio on a 7 year self-liquidating loan. The loan may be interest only the 1st year until the upgrades are in place. Loans from $500,000 to $5,000,000 are fixed at 8%. | | | f 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 President and Founding Partner Steve Bram will be guest lecturing on Commercial Real Estate Project Financing at USC’s Marshall School of Business next Thursday morning. Mr. Bram’s lecture will explore avenues and pitfalls of debt and equity raises for cash flowing or soon to be cash flowing commercial real estate. | | | Pascale's Perspective | Financial Crisis – September 2008 Exactly five years ago, the Lehman Brothers collapse and bankruptcy marked the “bottom” of the global financial crisis, the fallout exacerbated the credit crisis into a panic and ultimately crashed stock markets worldwide. Financial giants such as Wachovia, Washington Mutual, Merrill Lynch were “instantly” merged with various money-center banks (along with government backed “loss sharing” for the surviving banks). Countrywide and Bear Stearns also went down this path, changing the financial landscape forever. Unprecedented government and central bank intervention followed including TARP, HARP, near zero Federal Reserve rates, massive coordinated liquidity injections from 5 major central banks, Fed guarantees of overnight swap lines, Quantitative Easing I, II, & III, etc. These policies and the financial atmosphere today became known as “the new normal” - with ultra-low interest rates that spurred a recovery (albeit without “normal” job growth). This begs the obvious questions, 1) When will the “old normal” return? 2) Will it ever? 3) Will we ever see an economy without Fed intervention, “normal” interest rates, controlled inflation and a robust job market? 4) Will macroeconomic news move markets instead of anticipated or actual Fed moves? Some fear that the US employment market has changed forever as companies automate, outsource and increase productivity with smaller workforces post 2009/2010 recession. As this five year anniversary neared, the Federal Reserve prepared to start removing the "training wheels.” During this period, the Fed’s Balance Sheet swelled to $3.6 TRILLION, up from the prior $500 Billion. The September 17th Fed announcement is expected to indicate the first step in winding down the Fed’s “Ultra Accommodative Fiscal Policy” as the monthly bond buying will be lowered by $10 billion. The anticipation of this Fed action has spiked interest rates, but seemingly has not derailed the recovery. As government manipulation recedes, what will be the next economic driver to spur job and economic growth? …Stay Tuned….. David R. Pascale, Jr. |
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©2013 George Smith Partners, Inc. DRE # 00822654 FINfacts is an ePublication of
George Smith Partners, Inc. For Promotional Purposes Only. All Rights Reserved.
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