GSPartners
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Volume SSI | No. 23 | June 18, 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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1.68%
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5 Yr Swaps
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1.76%
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12-MAT
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0.12%
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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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2.59%
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10 Yr Swaps
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2.68%
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11th Dist COFI
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0.68%
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6 Month LIBOR
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0.32%
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30 Yr US Treasury
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3.40%
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| | | Transaction Description: | | $12,700,000 Pre-Development Loan: San Diego, California GSP successfully placed the $12,700,000 pre-development loan on a full city block in downtown San Diego. While currently operated as a leased in-line retail center, the property will consist of 700 residential units and 60,000 square feet of anchored retail upon build-out and re-stabilization. While the site is extremely well located, the property does not have final entitlements in place although the downtown master EIR allows for the modeled business plan. Comparable land sales sized the loan to 60% of “As-Is” value for this Class C retail asset. The in-place 0.62 debt coverage ratio required the need for a large interest reserve. The interest only loan is priced at 6.5% for two years and carries a one year extension. |
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| | | Transaction Description: | | $5,756,000 Cash-Out Refinance for a 31,000 Square Foot Retail Center Shahin Yazdi successfully placed the $5,756,000 cash-out refinance on a 100% leased retail center in South Central Los Angeles. Anchored by an auto repair garage, the property is held as tenants-in-common without the benefit of a single purpose entity. The 10 year term is fixed for seven years at 3.85% before floating, and amortizes over 30 years. Recourse is limited to the top 25% of the loan. There are no holdbacks or reserves to address the potential lease turn. |
Challenge: This loan request presented a series of challenges including high rollover risk in the first four years, a return of equity, and a non-traditional ownership structure. |
Solution: GSP mitigated rollover concerns by demonstrating the high historical occupancy and strong location of the property, and that the anchor tenant enjoyed a ground lease at below-market rates. The Lender became very comfortable with the Sponsor’s business plan and use of the net proceeds. |
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| | | Transaction Description: | | $2,215,000 Acquisition Financing for Unanchored Retail Center in a Secondary Market George Smith Partners successfully placed the acquisition financing for a 28,545 square foot unanchored multi-tenant retail center in Palmdale, California. The property is well located in an established retail corridor with a high occupancy history. Sized to 73% of cost, the 10-year term is fixed at 4.625% for 5 years before rolling to a LIBOR based floater. There is no prepayment during the term of the loan. |
Challenge: Palmdale has been one of the last markets to recover from the economic downturn. Retail leasing in this market is challenging with average vacancy above 20% for most centers. Several capital providers offered 50% of purchase or less. The initial appraiser under-valued the property due to poor selection of comparable properties and unsupported assumptions. |
Solution: GSP identified a community bank that had recently originated a similar loan in Palmdale and accepted GSPs analysis of the strength of this location, its’ long history of +90% occupancy and expertise of the borrower. The lender agreed with GSP’s assertion that the appraisers’ assumptions were unsupported and ordered a fresh appraisal. GSP demonstrated the viability of the local sub-market and positive attributes of this asset that supported this arms-length sale price. Sponsor competency and fresh cash equity to close cemented the lenders’ commitment to fund as applied for. |
| | Rate: 4.625% Fixed for 5 Years | | Term: 10 Years | | Amort: 30 Years | | LTV: 73% | | Prepayment: None | | Recourse | | Advisors: Stephen Stein, Teddy Stutz |
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| | | | Middle Market Non-Recourse Bridge Debt As more capital floods into the real estate market, minimum loan limits for reposition debt has climbed across most capital programs; a $10,000,000 threshold has become the new lower limit as providers have more cash than resources to distribute funds. GSP is working with a non-recourse debt-fund still targeting middle market executions and will fund from $5,000,000 at LIBOR + 525 on a national basis. Sub-1.0 dcr is funded with an interest reserve although LOIs or a solid business model is required for below break-even coverage. Heavy TI or reposition construction is funded on a non-arb basis with interest paid only on released funds. Three year terms come with extension options and sized to 85% of total cost on a non-recourse basis, subject only to completion guarantees. |
| | | 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 | | | Speakers Corner | GSP Founding Partner Gary M. Tenzer will be a panel participant at the June 19th Opus Connect’s Real Estate Finance Panel in Century City/Los Angeles. Mr. Tenzer will also moderate the CMBS panel during the June 25th Real Share Investment Conference held in downtown Los Angeles. Additional information concerning each event is available on-line and hot linked here. | | | Speakers Corner | GSP President Steve Bram will be speaking at the 10th Annual Real Estate Syndication Summit at the LUXE Hotel in West Los Angeles on Saturday July 19th. Other guest speakers and registration information is available on-line. | | | Pascale’s Perspective: |
"New Normal" reiterated by today’s price action The Federal Reserve announcement today was closely watched due to yesterday’s .4% CPI print; showing the biggest cost of living increase since February 2013. This may cause inflation "hawks" to push for raising the federal funds rate. Today’s adroit message at the press conference with Chairperson Yellen caused both debt and equity markets to rally. The ten year yield closed at 2.58% after hitting a high this week of 2.66%. The old pre-crisis paradigm of an inverse relationship between debt and equity markets no longer exists. Both markets rallied as the Fed slashed GDP growth forecasts downward to 2.1-2.3%; from 2.8-3%. This less robust forecast mirrors the IMF’s recent downward revision to 2%. The projection in US economic growth suggests that the Fed is "nowhere near raising short term rates". Bond and equity markets were bid as they react more to possible future stimulus than they do to price/earnings fundamentals. The overall debt market rally is a boon to the competitive CMBS market as spreads continue to compress with full leveraged rates available to borrowers. …stay tuned… David R. Pascale Jr. & Matt Kerchner
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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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