FINfacts Newsletter XXI-19

Volume XXI  |  No. 19  |  May 14, 2014   Letter to the Editor KEY RATE INDICES Prime Rate  3.25% 1 Month LIBOR  0.15% 5 Yr US Treasury  1.56% 5 Yr Swaps  1.66% 12-MAT  0.12% 3 Month LIBOR  0.22% 10 Yr US Treasury  2.55% 10 Yr Swaps  2.63% 11th Dist COFI  0.70% 6 Month LIBOR  0.32% 30 Yr US Treasury  3.38%     Transactions of the Week Transaction Description: $13,000,000 - 70% Loan to Value, Refinance and Future Construction GSP successfully placed a $13,000,000 commitment to be funded in two tranches; 1) the refinance of an existing first mortgage that was ballooning and 2) provide funds for a Net Zero energy conversion program on a 140,000 industrial building located in Southern California. The first $6,800,000 tranche is priced at 4.95% fixed for the 16 year term. The loan is interest only in year 1 and then is fully amortized over the remaining 15 years. The second $6,200,000 tranche will be used to fund the Net Zero (“NZ”) construction once costs are finalized. [Net Zero is an energy generation/conservation program designed to generate as much energy as is used by the subject property]. Priced at 10 Year SWAPs plus 2.30% the rate will be set upon the bank’s acceptance of plans and budget. The second tranche is co-terminus with the first and is fully amortized over 16 years. The combined LTV is 70%. Challenge: The building had debt maturing in 6 weeks from when GSP was engaged. The financing had to both retire the existing debt and provide funds for the NZ construction, even though the scope and costs of the NZ project were not yet determined. Solution: GSP identified a commercial bank willing to bifurcate the loan into two tranches; funding the first tranche on the existing building and essentially agreeing to a construction loan before the costs and scope of the NZ project were known. Term: 16 Years Amort: 1 Year I/O then 15 Years LTV: 70% Combined Recourse Advisor: Gary M. Tenzer Transaction Description: $7,200,000 Non-Recourse refinance for a 90 Unit Holiday Inn Express GSP successfully placed the non-recourse refinance of a 90 unit limited-service hotel in a tertiary market of California. The MSA has a population of less than 360,000 people. The subject property had 8 years remaining on the franchise at the time funding. Fixed at 4.82% for five years, the loan amortizes over 25 years and was sized to 70% of appraised value. Challenge: The subject property was built in 2007 as an independent limited-service boutique hotel and later flagged with another limited-service brand in 2008. Despite franchising, the property went through significant turmoil during the recession. The existing loan was on a loan modification agreement with substantial back owed interest and delinquent property taxes. The note had reached maturity and there were no options for an extension. The borrower’s global cash flow would not support this asset and precluded many portfolio lenders from entertaining the loan request. Solution: GSP identified an aggressive lender that recognized the significant turnaround in the last two years of operation as a result of franchise change to Holiday Inn Express and accepted the borrower efforts their attempt to bring back-owed interest and property taxes current. Global cash flow concern was mitigated by demonstrating the owner’s pride of ownership and significant cash equity into this transaction. These metrics allowed the lender to see beyond the credit quality of the borrower and allow the subject property to outweigh peripheral circumstances. By engaging George Smith Partners, the borrower protected millions in cash equity invested in the property by avoiding a term maturity default and possible foreclosure all while achieving favorable pricing and leverage. Rate: 4.82% Fixed Term: 5 Years Amort: 25 Years Non-recourse Lender Fee: Par Advisor:  Ameet Chagan Transaction Description: $2,437,500 Multifamily Acquisition; Two Unrelated Properties GSP successfully placed the acquisition financing for the purchase of a 29 unit multifamily property and a 10 unit asset, both located in Downtown Los Angeles. Both loans are fixed for 5 years at 4.05% and 3.72% respectively, before rolling to an adjustable rate for the remainder of the term. The sale of the larger property was contingent upon the sponsor completing the purchase of a second property at the same time. The loans were provided from two separate capital providers for the same purchaser. Pricing was wider for the 29 unit asset due to the 100 year age and that 28 of the 29 units are singles. Constrained by a 1.25 DCR and 75% of purchase, the recourse loans offer a step-down prepayment, open after the fourth year without penalty. Rate: 4.05%/3.72% Term: 5 Years Fixed then Floats Amort: 30 Years LTC: 75% DCR: 1.25/1.20 Prepayment: Step-Down Recourse Lender Fee: Par Advisor:  Jason Gaffner Hot Money Private REIT with CMBS-Like Execution w/Step-Down Prepayment GSP is funding 10 year non-recourse permanent loans with a private REIT. Fixed rate transactions from $2,000,000 to $10,000,000 are structured with a step-down prepayment, typically 5-4-3-2-1; open the remaining 5 years of the loan term. Borrowers with impaired credit, light liquidity and/or C+ or better assets are sized to 8¼% debt-yields for multifamily and 9¼% debt-yields for commercial assets. Pricing ranges from 5¼% to 5½% for the 10 year term. Up to five year Interest Only requests will be considered based on the real estate. Top 100 MSAs nationwide are considered for core asset types. 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 Treasury Yields Drop on Technicals and Europe, CMBS Volume “Scarcity” Drives Spreads Down……  This morning’s PPI report was higher than expected (0.6% vs. 0.2%), a key indicator for inflation.  Treasury yields should have spiked, but they rallied.  Why?  The market was surprised news that the ECB is considering extraordinary measures to achieve their inflation targets including possible negative deposit rates.  The Bank of England stayed “neutral” but indicated they will not raise rates until 2015.  This caused treasuries to break out of their recent tight range with the 10 year dropping below 2.60%, a key technical indicator as investors who had shorted treasuries were forced to buy (cover their trades) sending yields even lower.  The 10 year closed at a 6 month low, 2.53%.....  Meanwhile, CMBS is experiencing a slight “scarcity” tightening spreads.  Why?  Large volumes in 2012-2013 were due to pent up demand, the “low hanging fruit” being picked, etc.  Now other lenders (banks, funds, etc) are picking up their lending volumes.   …..stay tuned….  David R. Pascale, Jr. ©2014 George Smith Partners, Inc. DRE # 00822654 FINfacts is an ePublication of George Smith Partners, Inc. For Promotional Purposes Only. All Rights Reserved.