GSPartners
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Volume XXII | No. 46 | December 10, 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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1.56%
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5 Yr Swaps
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1.70%
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12-MAT
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0.11%
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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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2.17%
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10 Yr Swaps
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2.29%
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11th Dist COFI
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0.67%
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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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2.84%
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| | | Transaction Description: | | $23,500,000 Acquisition Bridge Financing of two Multi-Tenant Industrial Business Parks to 75% of Total Capitalization GSP successfully placed a high leverage non-recourse acquisition bridge loan for two multi-tenant industrial business parks. The bridge loan provides the Sponsor three years to execute a business plan that consists of repositioning, renovating and leasing the properties. At acquisition, the properties were 78% and 74% occupied, respectively. $20,200,000 of the on-book financing was funded at closing with the remaining $3,300,000 to be future funded to cover 100% of CapEx, tenant improvements and leasing commissions, eliminating the need for the Sponsor to contribute additional future equity. Interest will not be paid on future funding until disbursement. Although cross-collateralized at loan closing, the assets can be uncrossed at par upon achieving stable debt yield and loan-to-value hurdles. Floating at L+4.50% for three years on an interest only basis, the loan carries two (2) one-year extensions. A two-year cap was purchased at closing with a required renewal in the third year. |
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| | | Transaction Description: | | $14,400,000 Acquisition & Renovation Bridge Financing for an Office to Retail Conversion GSP secured a $14,400,000 non-recourse bridge loan for the acquisition and renovation of a 9,200 square foot medical office building in West Los Angeles. The loan was sized to 80% of total project cost, including reserves to fund 100% of interest, renovation, and TI/LC costs. $11,465,000 of financing will be funded at closing. The remaining $2,935,000 is held in reserve, with no interest paid on reserve funds until disbursement. The loan floats at L+5.85% on an interest-only basis. |
Challenge: The asset is located in a micro-market of West Los Angeles, featuring some of the highest per square foot rents and valuations in the country. In addition, the Sponsor’s business plan called for completely vacating the building for several months while it is converted into retail space. Since the property was in the midst of Coastal Commission approval for change of use, the financing required a lender willing to take entitlement risk. This was the Sponsor’s first project as a partnership. |
Solution: Through diligent market research, GSP proved out the asset’s lofty valuation and projected rental rates. A competitive process identified a lender willing to take entitlement risk, and structure a 12 month interest reserve, giving the Sponsor a cushion to lease up the new retail space after renovation. The strength of the market, business plan, and Sponsor’s principal’s individual experience mitigated their lack of partnership track record. |
| | Rate: LIBOR+5.85% | | Term: 3 Years + Two 1-Year Extensions | | Amort: Interest Only | | LTC: 80% | | Prepayment: 18 Months Yield Maintenance, Open Thereafter | | Non-recourse | | Advisors: Gary Tenzer, Henry Elder |
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| | | Transaction Description: | | $4,250,000 Construction Loan Take-Out Bridge Financing for a 12 Unit Multi-Family Asset Jonathan Lee arranged the construction loan take-out financing for a 12-unit Toluca Lake Apartment Building currently undergoing lease-up. The newly constructed multi-family building had recently achieved certificate of occupancy and had yet to stabilize at the time of funding. A 5.0% fixed rate loan was sized to 82% of total capitalization, allowing for a $650,000 return of equity to the Sponsor. Interest Only for the 1st year, the loan will amortize over 30 years for the remaining four years of the term. There is no prepayment penalty during the loan term. |
Challenge: The subject features units that are 20% larger than the competitive set. To the Sponsor, this represented an opportunity to fulfill a market need. To a Lender, this represented unproven product risk. Having just received the certificate of occupancy, the building was vacant at the time of funding. |
Solution: Market research, area demographics, and asset quality demonstrated the strength of this newly constructed project. Occupancy risk was mitigated through a financing strategy that included an appropriate interest reserve, allowing the Sponsor time to lease up the 12 units. |
| | Rate: 5.0% Fixed | | Term: 5 Years | | Amort: One Year IO; 30 Years Thereafter | | LTC: 82.0% | | Prepayment: None | | Recourse | | Lender Fee: 0.5% | | Advisors: Jonathan Lee, Adam Candler |
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| | | | National Bridge Program from $5,000,000 GSP is funding reposition transactions for a nationwide debt fund for all commercial uses including hospitality and healthcare to 80% of total capitalization. Non-recourse requests are considered sub-1.0 coverage although some cash flow is expected at funding. Major overhaul construction is managed through an in-house funds control; interest is only paid on dispersed funds, there is no neg-arbitrage. Priced from the mid-4s to mid5s, origination/exit fees are 1 in and ½ out. |
| | | 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 |
Treasuries Rally Yet Again; Reports May Shed Light on Limits of Fed’s Power...The 10 year Treasury has rallied this week, sending yields down to 2.16%, today’s close, after climbing to nearly 2.30% after last Friday’s strongest job report in 5 years. Treasury yields should be spiking on this news, but they are dropping, why? Look overseas, weak export report from China, a weak import report from Japan, industrial contraction in Germany. With the overseas central banks in massive QE mode and the lingering threat of deflation, overseas bond yields are dropping, with the German 10 year Bund at 0.71% (!) This makes US Treasuries “cheap” and “high yield.” Speculation continues on when the US Fed will raise short term rates. The Fed has been watching and hoping for wage inflation, which raises the well-being of consumers, retailers, home sellers, etc. Last week’s jobs report indicated a long awaited pick up in wages after several months of stagnation. Some perspective may be found in a series of reports from Southern California’s top economists were released last week as part of the Southern California Association of Government’s Economic Recovery and Job Creation Summit. The reports indicated that while job creation is positive, structural changes have occurred that are actually lowering wages for the middle class. Increased automation, overseas competition and other factors have eliminated traditional manufacturing jobs, while new job creation is in retail, food services, etc. One metric indicated that the typical manufacturing job that paid $70,000 per year is being replaced by retail jobs paying $25,000-$30,000 per year. The report called for investments in education and job training. These findings suggest that no amount of rate cutting, cheap money, etc. can make the structural changes necessary to spur new higher paying jobs. The changes will require significant action from other sectors of society…Stay Tuned…
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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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