GSPartners
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Volume XXI | No. 36 | September 24, 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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0.15%
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5 Yr US Treasury
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1.80%
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5 Yr Swaps
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1.96%
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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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2.57%
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10 Yr Swaps
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2.69%
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11th Dist COFI
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0.68%
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6 Month LIBOR
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0.33%
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30 Yr US Treasury
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3.28%
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| | | Transaction Description: | | $56,500,000 Creative Office Refinance GSP secured the cash out refinance of a 157,000 square foot 100% leased creative office building in Southern California. An additional 13,000 square feet of office space is being added to the collateral and was under construction at the time of funding. The $56,500,000 loan returned substantial cash equity back to the Sponsor. Underwritten to a 7.57% debt yield and a 1.29 DCR, the non-recourse loan is fixed for 10 years with a 30 year amortization at 4.41%. |
Challenge: To achieve the maximum cash out, the lender included income from a partially completed building on the property. Although pre-leased, the new tenant had a termination option if construction was delayed. Additionally, the lender utilized the proforma rental income for a major space which was under LOI to a higher paying tenant set to sign their lease post close. The lender also included two long term lease extensions from existing tenants even though the increased rent doesn’t start for 4-6 months. Cross-easements from unrelated properties also generated a parking deficiency. |
Solution: GSP showed that the sponsor was a “best in class” operator. GSP demonstrated that some of the cash proceeds would be invested back into the surrounding area, ultimately increasing the value of the subject collateral. As a result of these rent inclusions for future rental streams, the final loan amount was $8.5 million more than the initial loan request. A $5,000,000 holdback was structured to cover remaining construction costs, TI/LC’s, three years of contractual rent abatements and the possibility that the new tenant doesn’t sign the proposed lease. |
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| | | Transaction Description: | | $4,200,000 Permanent Flex-Office Acquisition Financing w/Expiring Leases Gilda Rivera and Salar Royaei placed the $4,200,000 acquisition loan for a 31,000 square foot flex-office building in Pasadena, California. The current owner had acquired the asset “all cash” through a foreclosure sale and recapitalized his balance sheet through this financing. The five year loan was funded to 73% of original purchase, is fixed at 4.0% with 30 year amortization. A step-down prepayment was negotiated to allow for future reposition flexibility. |
Challenge: Purchased out of foreclosure, there was no historical operating history on the property. 50% of the leases expire within the next 24 months and the subject required a capital improvement program to bring differed maintenance items current. |
Solution: GSP identified a relationship lender who mitigated the property’s past history, lack of historical information and short leases with the Borrowers’ business plan and his capacity to execute in this market. Market strength and the Sponsor’s resume and financial capacity allowed the lender to fund based on market conditions rather than specific asset performance. |
| | Rate: 4.0% | | Term: 5 Years | | Amort: 30 Years | | LTC: 73% | | Prepayment: 5,4,3,2,1 | | Recourse | | Lender Fee: Par | | Advisors: Gilda Rivera, Salar Royaei |
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| | | Transaction Description: | | Mini-Perm/Bridge Loan Below Break-Even at Close Shahin Yazdi successfully placed the 65% acquisition loan on a 3,325 square foot retail asset located in Southern California. At close, the in-place cash flow did not support the funded loan. The 5 year term is fixed for 3 years, a characteristic that is uncommon for transactions that do not support the debt with a positive coverage ratio. The 4.75% rate will float over Prime after the initial three year term. |
Challenge: Despite the new cash equity to purchase, in-place income did not support the loan amount requested. The sponsor was rebuilding his assets from a previous bankruptcy that significantly impacted his balance sheet and global cash flow. |
Solution: The borrower’s business plan called for collection of past-due income the prior owner had ignored and increase rents for several month-to-month tenants. GSP identified a lender who understood the premiere location and underwrote current market conditions to support the below breakeven debt coverage ratio. Sponsor’s weak global cash flow was mitigated by his strong management resume and fresh cash equity infusion. |
| | Rate: 4.75% Fixed for 3 Years | | Term: 5 Years | | Amort: 25 Years | | LTV: 65% | | Prepayment: 3,2,1 open | | Recourse | | Advisors: Shahin Yazdi, Henry Elder |
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| | | | Non-Recourse Bridge and Perm; Small Balance Multifamily GSP is working with a national capital provider funding both bridge and permanent multifamily assets from $1,000,000 to $5,000,000 on a non-recourse basis. Bridge transactions are underwritten to 80% of “as-is” value plus 100% of rehab to $5,000 per unit. Occupancy must be at 80% or better at close. Small balance fixed rate products start at 3.5% fixed for five years. Up to 20 year terms (fixed for a maximum of 10 years) are amortized over 30 years. No tax or insurance impounds at 65% LTV or less. Capital Expenses are underwritten but not reserved. |
| | | 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 | Founding Principal Gary M. Tenzer will be moderating the finance panel at the Real Share Apartments Conference on October 15th and 16th. Unlike prior conferences, this will be a two-day event. Mr. Tenzers’ panel will focus on alternatives to agency debt for multifamily acquisitions. The agenda and registration information is available on-line | | | In The Press | GSP Vice President Gilda Rivera was recently interviewed by GlobeSt on “Navigating a Post-Recession Refinance”. Ms. Rivera, a 15 year veteran of commercial real estate lending, has shared her experiences and insight on the commercial real estate resurgence since the 2008 market melt-down. The entire article is available on-line. | | | Pascale’s Perspective | Connecting the Dots on Rates? The Fed released a “dot plot” last week showing the governors’ predictions of future rate increases. It indicates that the “normalized” short term funds rate (which has been virtually zero since late 2008) is 3.75%. Late 2017 is the target date. That indicates 13 quarter point rate raises. When? Note the Fed meets eight times per year and the general consensus is rates to start rising in mid-2015; the dots indicate raises at nearly every Fed meeting from mid 2015 until late 2017. With Europe in full on fear of deflation and massive QE, the question is will LIBOR rise in lock step with the Fed? This is the question from real estate investors as so many rates (bank, bridge lending funds, CMBS swaps) are tied to LIBOR. ….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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