GSPartners
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Volume XXI | No. 11 | March 19, 2014
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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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0.16%
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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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1.80%
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12-MAT
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0.13%
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3 Month LIBOR
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0.23%
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10 Yr US Treasury
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2.77%
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10 Yr Swaps
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2.89%
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11th Dist COFI
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0.77%
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6 Month LIBOR
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0.33%
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30 Yr US Treasury
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3.65%
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| | | Transaction Description: | | $32,000,000 Refinance for a 5 Property Pool of Southern California Multifamily Properties George Smith Partners arranged the $32,000,000 (60% of value) floating rate portfolio loan at “best pricing” for a pool of 5 Southern California properties. The portfolio included: (1) 43-live work lofts in Los Angeles Arts District, built in 1937, refurbished 1985, 97% occupied; (2) 10-unit Riverside apartment complex; (3) 272-unit Indio apartment complex, built in 1985, renovated in 2012, 100% occupied; (4) 130-unit Indio apartment complex, built in 1987, 97% occupied; and (5) 34-units of an Indio broken condo complex, 94% occupied as rentals. The floating rate loan is interest only for the first two years of the four year loan term. Based at 185 over the 30 day LIBOR, the loan does not contain an interest rate floor, ie the “all-in” rate is 2.01% today. |
Challenge: Our Sponsor sought to take advantage of today’s low-floater programs and requested the lowest possible floating pricing; agreeing to sign personally in exchange for a lower coupon. The property locations and property sizes do not typically fit a large national bank with this pricing or structure. An earn-out was also needed for an office to loft conversion. The Borrower’s Personal Financial Statements were hard to understand with complex investments in non-real estate financial paper. |
Solution: GSP used their relationships to find identify a money center bank willing to invest time to understand the complex financial statements and structure a loan that included smaller properties in secondary and tertiary locations. Future earn outs based on increased income was also included. |
| | Rate: LIBOR+1.85% | | Term: 4 Years w/3 Year Ext | | Amort: 2 Years IO; 30 Year Amort | | DCR: 1.13 on 6.5%/30 | | Recourse | | Lender Fee: 0.35% | | Advisors: Steve Bram, David Pascale |
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| | | Transaction Description: | | $12,000,000 Non-Recourse Acquisition Bridge Financing for Non-Credit Hispanic Grocery Anchored Retail Center to 80% of Cost GSP successfully placed a $12,000,000 non-recourse bridge loan for the acquisition of a 108,000 square foot grocery anchored community retail center located in North San Diego County, California. The 80% loan to cost bridge loan consisted of an initial funding of $10,400,000 (82% loan to “as-is” value) and a future funding of $1,600,000 to fund 100% of budgeted tenant improvements, leasing commissions, and capital improvements. |
Challenge: Approximately 25% of the collateral is leased to a under-performing local tenant with significant contractual rent bumps. Sponsor saw an opportunity for future cash flow upside given interest in the space by investment grade retailers as replacement tenants, however many lenders didn’t like the uncertainty of the current cash flow. The loan had to be structured to provide the funds to re-tenant this space in the event that the local tenant vacates, despite the fact that the current lease goes through 2017. |
Solution: GSP identified a lender willing to provide maximum leverage on the acquisition and future fund both immediate CapEx to increase the property’s “curb appeal” and tenant improvements and leasing commissions if/when the local tenant vacates. This portfolio lender placed emphasis on the strong real estate fundamentals and the Sponsor’s management expertise and retail relationships in order to support the value creation strategy and allow for high leverage non-recourse debt. |
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| | | Transaction Description: | | $1,500,000 Recorded 2nd Trust Deed to 87% LTV on a San Francisco Industrial Building Bryan Shaffer successfully structured a recorded 2nd mortgage for an Owner/User Sponsor on a San Francisco industrial building. The cash-out proceeds were used for a much needed equity infusion into the business operations. The holder of the $6,000,000 Senior note agreed to allow the 2nd Trust Deed. The one-year term loan self-services through a lender funded interest reserve. |
Challenge: With less than two weeks to execute, the Sponsor required capital to rescue his business. It was cost prohibitive to retire the senior lender and very few capital providers will provide second mortgage debt. |
Solution: GSP quickly identified a private capital provider who understood the San Francisco Industrial Market and did not require further market support. The flat decision making process helped expedite the closing to meet the two week time-line from introduction to close. |
| | Rate: 14% | | Term: 1 Year + 1 Year Option | | Amort: IO-Funded through Interest Reserve | | LTV: 87% | | Advisor: Bryan Shaffer |
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| | | | Structure Non-Recourse Bank Debt George Smith Partners is working with a non-retail bank funding larger floating rate loans for stabilized and transitional commercial assets. Loans from $30,000,000 to $100,000,000 are funded on-book to 65% LTV. Presented as a cross between a commercial bank and a debt fund, assets are traditionally B quality and require repositioning or loan structures at pricing below most debt funds. Interest reserves may be structured for below break-even cash flow. Three to seven year terms are priced at LIBOR plus 275 to 400 with flexible prepayment options. Stabilized hospitality in gateway cities is aggressively underwritten. |
| | | 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 | Yellin’s First Presser leads to Volatility, was it intended?—Fed Chair Janet Yellen’s first press conference (following the release of the meeting statement) was closely watched by markets. The statement was benign and expected, tapering will continue as the Fed is decreasing monthly bond buying by another $10 billion, it now stands at $55 billion per month. At this rate the bond buying (also known as Quantitative Easing) will end in September or October. The next step in returning to a “normal” economy would be a raise in the Fed Funds rate, which has been at 0-0.25% since December 16, 2008. Over the past few years, the Fed pegged the next raise to unemployment and inflation targets (below 6.5% or above 2.0% respectively), ie a “quantitative” approach. As expected, Yellin indicated a switch to a “qualitative” approach as unemployment is near 6.5% and the Fed consensus is that the economy needs more time at ultra-low rates. However, markets were rocked when discussing the period of time after the end of QE that the first rise would occur. She indicated that “6 months is a reasonable amount of time” which caused the Dow to drop over 200 points and treasuries to sell off, rising yields. The 10 year Treasury moved up 8 to 9 bpts while the shorter end was more reactive as demonstrated by a 15 bpt spike in the 5 year Treasury yield over three hours. The market heard “short term rates will rise in April 2015”. Note that Prime Rate, LIBOR, derivatives, consumer borrowing rates in the US and worldwide are pegged to this rate directly or indirectly… The 5 year treasury rise was especially sharp as the lower end of the curve reacted…. The day will come where the “easy money” stance of central banks will end, but perhaps investors are not ready to hear that it is basically 1 year away. ….stay tuned….. David R. Pascale, Jr |
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©2014 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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