GSPartners
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Volume XXI | No. 36 | September 18, 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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1.42%
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5 Yr Swaps
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1.60%
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12-MAT
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0.15%
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3 Month LIBOR
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0.25%
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10 Yr US Treasury
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2.69%
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10 Yr Swaps
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2.84%
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11th Dist COFI
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0.95%
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6 Month LIBOR
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0.38%
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30 Yr US Treasury
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3.75%
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| | | Transaction Description: | | $22,000,000 Joint Venture Equity for the Acquisition of an Industrial Portfolio George Smith Partners arranged the Joint Venture equity for the $42,500,000 acquisition of a seven-building industrial portfolio in greater Los Angeles. The existing Trust Deed was assumed due to an onerous pre-payment penalty. The portfolio encompasses 500,000 square feet of improvements. Building uses include big box industrial (24’ clear height with 28’ dock high doors), showroom/flex, and built-out research and development spaces. The high-image buildings have excellent curb appeal. The purchaser is a well-regarded, Los Angeles based investor with institutional investment experience and deep market knowledge. Equity terms included a 96%/4% capital contribution and promotes over an 8% preferred return. |
Challenge: Although 95% leased, these assets are only 88% occupied with over 75% of tenant leases rolling in the next 36 months. The seller had an existing low leverage loan in-place with a significant prepayment penalty and a high mortgage constant due to a 25 year amortization. Assumption of the existing loan resulted in a low cash-on-cash yield and an IRR in the low to mid-teens depending on future market rents and inflation assumptions. |
Solution: GSP documented substantial rent growth in the sub-market and a 4% vacancy rate. We identified a core-plus equity investor who is knowledgeable of the sub-market and quickly became comfortable with the strength of the sponsorship, low cost basis, and risk-adjusted returns. GSP conducted a lender survey to explore replacing the existing debt and prepared a sensitivity analysis to evaluate low cost alternatives. Allowing for all pre-payment costs, we confirmed a loan assumption would provide the lowest cost debt capital. |
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| | | Transaction Description: | | $1,700,000 Single-User Acquisition GSP placed the $1,700,000 acquisition of Los Angeles based single-tenant user. The owner/operator needed this larger facility to expand his business. Although operations were improving, the sponsor does not show well on paper and falls short of the typically required net worth and liquidity covenants. GSP worked with the lender to confirm an increased in cash flow as well as documenting a pipeline of future orders. The comparative mortgage to prior rent ratio was also favorable. Closing occurred in less than 45 days, meeting the deadlines of the seller. |
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| | | | New Market Tax Credits GSP is funding transactions with a West Coast Capital provider who was recently awarded with a New Market Tax Credit allocation. They will invest an additional $34,000,000 on non-residential large-scale, job-creating projects in western states by year-end 2013. This Department of Treasury program is designed to provide federal tax benefits for low-income and distressed community investments. Equity investments are made in ventures that create jobs or serve the public. To date, this fund has invested in a City Hospital and culinary training school. |
| | | Hot Money | 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. | | | 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 | Fed “Shock and Awe” follows summers “Sunday Surprise” The 10 year drops to 4.69%.... Today’s ultra-dovish Fed statement and subsequent Fed Chairman press conference contradicted investor “certainty” that tapering would begin this month. Bond and stock markets staged massive rallies as bonds were suddenly undervalued and asset inflation returned (for today anyway)……Why? (1) The Fed’s next meeting is October 29, after potential bruising battles involving a US Government continuing resolution/shutdown and debt ceiling. The Fed may be concerned about the tightening effects (such as a consumer spending pullback) that may occur; (2) Chairman Bernanke mentioned a possible “interest rate floor” as part of future Fed guidance. This signals they are continuing bond buying in order to stave off potential deflation; (3) Fed is looking “behind the numbers” as they consider the limits of Fed power--ie massive “underemployment” (including those that have left the job market) and large numbers of employed in low paying jobs beneath their level of training/education. The Chairman indicated that ultra-accommodative policies may remain, even if the Fed’s target unemployment rate of 6.5% is reached, especially if inflation remains low. Bottom line: Inflation is more important than employment as an indicator. What about the “great unwinding” that will eventually occur as the Fed balance sheet approaches $4 trillion? Again, the Chairman indicated that they have “numerous tools” in place manage that process. Is this a temporary reprieve to get past the debt ceiling battle or coasting for the rest of the year? …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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