FINfacts XXI-37

GSPartners

Volume XXI | No. 37 | October 1, 2014

KEY RATE INDICES
Prime Rate	3.25%	1 Month LIBOR	0.15%	5 Yr US Treasury	1.67%	5 Yr Swaps	1.85%
12-MAT	0.12%	3 Month LIBOR	0.23%	10 Yr US Treasury	2.39%	10 Yr Swaps	2.54%
11th Dist COFI	0.68%	6 Month LIBOR	0.33%	30 Yr US Treasury	3.09%

Transactions of the Week

Transaction Description:

$52,743,000 Senior Construction Loan for Dual-Branded Hotel GSP placed the senior construction loan for a mid & luxury dual-branded high rise hotel. The 332 Room Hotel (188 Room Luxury Hotel & 148 Room Mid-level Hotel) is located in a primary California market. Floating over LIBOR with a 5.25% floor, the 51.5% of cost loan carries a 3½ year term allowing time for construction and stabilization prior to the need for options.

Challenge: The project was entitled & construction drawings had been completed prior to the ’08 recession. The sponsor had been unable to secure the financing for a variety of reasons prior to hiring GSP.

Solution: GSP secured a lender that had significant expertise in Type I hospitality construction and is knowledgeable of the hotel flag’s management company. GSP was involved throughout the process for the negotiation and execution of the management agreement and the selection of the GC and GMP/ GMAX construction contract; both vital to securing the construction facility. Upon contract executions, GSP utilized it’s expertise to prove the strength of the hotel and hotel brand’s with out-of-market and in-market performance data. This process assured the lender that the project is feasible from a cost, revenue & valuation perspective.

Rate: 30 Day LIBOR + 400 w/5.25% Floor

Term: 42 Months w/two - 12 Month Extension Options

LTC: 51.5%

Lender Fee: 1%

Advisors: Malcolm Davies, Kyle Hendrickson, Murtuza Razavi

Transaction Description:

$4,500,000 to 75% LTC on a Class C Multifamily Bryan Shaffer successfully placed the $4,500,000 acquisition of a Class C Multifamily Apartment project in Tulsa, Oklahoma. The Sponsor was seeking maximum loan proceeds which were constrained to 75% of the purchase price. The non-recourse 5 year loan is fixed at 4.55% with a 30 year amortization schedule. The lender agreed to allow the Sponsor to place future secondary debt on the property as its value increases.

Challenge: The property was under-managed by the seller who only maintained an 85% occupancy in a 7% vacant market. Criminal activity was also present and the property suffered from cosmetic and deferred maintenance.

Solution: Despite issues with current management and the below market occupancy rate, GSP demonstrated the Sponsors’ capacity to correct management and operate the property correctly. These measures allow us to secure long-termed institutional debt to 75% of current value as opposed to the hard money alternative that was initially contemplated by the Sponsor.

Rate: 4.55%

Term: 5 Years

Amort: 30 Years

LTC: 75%

DCR: 1.25

Non-recourse

Lender Fee: Par

Advisor: Bryan Shaffer

Transaction Description:

$3,780,000 Multi-Family Refinance in a Tertiary Market Shahin Yazdi successfully placed the 70% non-recourse refinance of a 75-unit apartment building located in a tertiary market. Market MSA is less than 200,000 residents. Fixed for 7 years at 3.64%, the 10 year term loan will float over LIBOR the final three years of the term. Pre-payment steps-down from 5%.

Challenge: The sponsor wanted to hedge interest rate risk by obtaining an extended rate-lock prior to loan approval and his current loan opening to pre-payment. A bank-ordered MAI valued the property below the underwritten value.

Solution: GSP negotiated an extended rate lock at no cost the borrower that allowed for a 130 day rate-lock prior to funding. Loan constraints were raised post-appraisal to mitigate the low valuation and maintain necessary proceeds.

Rate: 3.64% Fixed for 7 Years

Term: 10 Years

Amort: 30 Years

LTV: 70%

Prepayment: 5,5,4,4,3,2,1

Non-recourse

Advisors: Shahin Yazdi, Henry Elder

Hot Money

West Coast JV Equity from $4,000,000 Institutional equity firm is investing $4,000,000 to $20,000,000 in single family tract housing, small lot subdivisions, master planned development, commercial real estate, entitled and unentitled land across the Western United States. IRR driven, they seek a mid-20’s IRR for joint-venture partnerships, mid-teens IRR for Preferred Equity, and a minimum 30 IRR for land investments. Co-invest structures are deal specific, but tends to mirror structures commonly sought by institutional equity.

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

Congratulations to the Davies Family!

On Wednesday, September 17^th Malcolm and Angela Davies welcomed their beautiful twin girls into the world. London Jule & Gisele Gold Davies are healthy and safe at home with their mom and big brother, 5 year old Kingston. Everyone at George Smith Partners wishes the Davies Family happiness and prosperity for the years to come.

In The Press

Founding Principal Gary E. Mozer was recently interviewed by Real Estate Finance Intelligence on the influx of capital and investor drive for retail credit tenant transactions. Mr. Mozer's comments and the balance of the article are available on-line.

Pascale’s Perspective

Another “Detour” on the way to “Normalized” Treasury Yields….. The 10 year Treasury yield hit 2.65% in September as markets focused on Fed policy indicating potential rate increases as early as Spring 2015. Was this the long awaited end of the bond rally? Was Bill Gross heading for the exit just in time? Were the January predictions of a 3.50% (or 4.00%) 10 year by 2014 year-end starting to come true?..... Today saw the 10 year treasury hit a low of 2.40% as investors turned their attention to actual data. US, Germany and the UK all reported disappointing manufacturing numbers (Germany contracted). This combined with protests in Hong Kong (accenting general concern about China) and the first case of Ebola in the US contributed to a run on the safe haven of US Treasuries. It is too early to tell if CMBS spreads are widening as often happens in such sudden Treasury sudden moves. ….stay tuned… David R. Pascale, Jr.

FINfacts Newsletter XXI-37

Subscribe to Newsletter