FINfacts XXI-5

GSPartners

Volume XXI | No. 5 | February 5, 2014

KEY RATE INDICES
Prime Rate	3.25%	1 Month LIBOR	0.16%	5 Yr US Treasury	1.50%	5 Yr Swaps	1.61%
12-MAT	0.13%	3 Month LIBOR	0.24%	10 Yr US Treasury	2.67%	10 Yr Swaps	2.81%
11th Dist COFI	0.78%	6 Month LIBOR	0.33%	30 Yr US Treasury	3.65%

Transactions of the Week

Transaction Description:

$12,600,00 Non-Recourse Cash-Out Refinance Low-Income Multifamily Assets in Tertiary and Secondary Markets Shahin Yazdi successfully refinanced the debt on four low-income housing buildings throughout various tertiary and secondary markets in Washington State. The non-recourse senior loans were cross-collateralized with release provisions. Sized to 75% of value, the ten-year term loan was fixed at 2.30% over the 10-Year Swap Rate. This funding represents a significant return of equity to the Borrower.

Challenge: The Key Principal had several prior and existing tax liens and required a significant return of equity to cover these and other non-asset related expenses. Capital items had not been upgraded for several years and the property suffered from deferred maintenance. The Borrower held dated third party reports in HUD form from a failed application prior to engaging GSP, and requested they be utilized on the new application. Limited liquidity was available for the full deposit necessary to start the application process.

Solution: GSP mitigated the Key Principal’s credit issues by documenting a perfect mortgage and installment credit history. All tax liens were satisfied through escrow and impounds are required going forward. A capital reserve was held from a portion of the loan proceeds to renovate and update all deferred capital items. The lender agreed to use the existing reports once necessary edits were made to comply with the lenders requirements. The bank agreed to accept the deposit in two payments so due diligence could be initiated while giving the borrower an adequate amount of time to raise the additional funds needed for processing, commitment and closing.

Rate: SWAPs+2.30%

Term: 10 Years

Amort: 30 Years

LTV: 75%

Non-recourse

Lender Fee: Par

Advisor: Shahin Yazdi

Transaction Description:

$2,320,000 Cash-Out Refinance of a Single Tenant with 3 Years Remaining on the Lease to a TIC Borrower Shahin Yazdi placed the debt on a single tenant property that was held in a TIC (Tenants in Common) ownership structure. The lease term has only had 3 years remaining. GSP documented existing rents were significantly below market, so much so that the portfolio lender agreed to waive all prepayment penalties should the tenant vacate prior to the loan term expiration, allowing the owner the opportunity to recapture trapped equity. Cash out proceeds were underwritten to 75% of value as capped by the below market in-place income. The potential future value to be realized three years from funding made the capital provider comfortable with the TIC ownership structure and aggressive non-recourse fixed rate of 4.10% for five years. There are no capital or leasing commission reserves required.

Rate: 4.10%

Term: 5 Years

Amort: 30 Years

LTV: 75%

Non-recourse

Lender Fee: Par

Advisor: Shahin Yazdi

Hot Money

Special Use – Institutional Pricing George Smith Partners is working with a Southern California portfolio lender originating non-traditional transactions to put their money to work. While still funding on multifamily, retail, office and industrial assets, they are also underwriting hospitality, gas stations and alternative use projects on a mini-perm basis. SFR “bundled” rentals have also been funded from $1,000,000. Southern California assets are priced from 4.25% to 70% LTV to a $5,400,000 maximum lending limit. Though story transactions including single tenant with lease roll-over risk, motels and franchised restaurants are considered, all requests must be sized to cash flow in place at funding.

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.

Setting the bar for 2014…

GSPs Shahin Yazdi closed four transactions, (two are posted in this newsletter), was married and spent a week out of the country on his honeymoon during the month of January. Mr. Yazdi also placed three new transactions under application and secured two qualified term sheets for additional loan requests since the turn of the calendar. We can’t wait to see what he does in February. Congratulations Shahin on your recent nuptials and advancement to Senior Vice President at George Smith Partners, Inc.!

Pascale's Perspective

Safe Haven Treasury Rally Wanes, Fixed Rate Lenders Compete….. An unintended consequence of the Fed tapering has been volatility in emerging market currencies, which fueled a flight to quality in Treasuries, sending yields lower. The 10 year hit 2.67% last week. It turns out that the emerging markets were highly dependent on the increased liquidity provided by the Fed and that the perception that US interest rates are rising makes investors less likely to chase returns in those markets. However; those markets stabilized this week after some of their central banks (example: Turkey) took extraordinary steps to bolster the currencies. The resulting Treasury sell off brought rates to about 2.58% earlier today. The confluence of the risk averse international macro markets and the “risk on” CMBS markets allowed borrowers to lock rates in the 4.75% range as Treasuries and credit spreads rallied simultaneously. GSP attendees at this week’s Mortgage Bankers Conference counted 35 CMBS originators; the competition is driving spreads down more than tighter bond execution, ie profit margins are tighter among lenders. To preserve credibility, The Fed’s decision to continue tapering last week indicated its resolve to continue to tighten monetary policy even during market volatility. …..Stay tuned…. David R. Pascale, Jr.

FINfacts Newsletter XXI-5

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