GSPartners
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Volume XXIII | No. 37 | September 30, 2015
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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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0.19%
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5 Yr US Treasury
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1.36%
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5 Yr Swaps
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1.41%
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12-MAT
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0.22%
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3 Month LIBOR
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0.33%
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10 Yr US Treasury
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2.04%
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10 Yr Swaps
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2.03%
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11th Dist COFI
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0.64%
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6 Month LIBOR
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0.53%
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30 Yr US Treasury
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2.85%
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| | | Transaction Description: | | $7,800,000 Non-Recourse Acquisition/Bridge/Renovation for 150 Unit San Antonio Apartments to 85% of Cost George Smith Partners successfully placed acquisition and bridge loan for a 150 unit garden community apartment complex in Northwest San Antonio. This loan represents 85% of the total capitalization. Located near two of San Antonio’s largest employment centers, planned renovations will approximate $14,000 per unit for common area and unit interiors. Renovations will allow sponsors to raise rents approximately $0.25 per square foot over the next two years. This is the third financing arranged by GSP with this Sponsor in San Antonio since April. GSP worked with the lender in negotiating a customized LIBOR cap structure to control closing costs and provide adequate protections for both Borrower and Lender. The six available floor plan types are spacious and over 55% of the units are two and three bedroom. The complex also features swimming pool, landscaped grounds, picnic areas, covered parking. Floating at 5.0% over 30 Day LIBOR, debt service is paid monthly on an interest only basis for the entire three year term for the non-recourse loan. Locked for the first year, there is a 1 point exit fee that will be reduced should the bridge lender provide the permanent take-out. |
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| | | Transaction Description: | | $3,700,000 Multifamily Refinance at 3.86% w/Three Years IO GSP successfully arrange the low-leveraged refinancing of a 39 unit Los Angeles multifamily. Approximately $900,000 of equity was recaptured through this transaction, yet monthly debt service still improved from the prior 5.15% priced loan. Sized to 55% leverage; the Sponsor requested prepayment flexibility to allow for future equity draws or a sale if desired. The 10 year term is fixed at 3.86% and allows for three years of interest only payments before amortizing over 30 years for the remaining seven year term. Prepayment is fixed and steps down from 5% every two years for this non-recourse loan. |
| | Rate: 3.86% | | Term: 10 Years | | Amort: 3 Years IO; 30 Years Thereafter | | LTV: 55% | | DCR: 1.40 | | Prepayment: 5,5,4,4,3,3,2,2,1,1 | | Non-recourse | | Lender Fee: Par | | Advisor: Jason Gaffner |
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| | | Transaction Description: | | Special Purpose/Mixed-Use North Carolina Refinance GSP placed the refinance of a mixed-use commercial property in Durham, North Carolina. The asset consists of residential rental units and a day care/pre-school. Our Sponsor resides in one of the units and operates the pre-school. Excess proceeds were used to buyout an existing partner. Sized to 60% of appraised value, the recourse loan is fixed for 5 years at 6.07% prior to floating for the remainder of the 20 year term. Prepayment penalty is 5% flat for the initial fixed rate term and open thereafter. |
Challenge: There were multiple State and Federal Tax Liens filed against the Borrower in addition to other credit issues that reduced the Sponsor’s credit score. The pre-school’s revenues had been declining since 2012, making it difficult for underwriters to accept this business model. |
Solution: State and Federal Tax Liens were explained and documented by the Borrower’s Tax Attorney and IRS to gain a better understanding of the Liens. A lien pay-off was structured and additional proceeds were allocated to allow the buyout of the existing partner. Although business revenues had been trending down, there was an increase in enrollment at the end of 2014. This coupled with our Borrower’s plan to cut operating costs support a significantly improved 2015 EBITDA. |
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| | | | Zero Cash Flow National Bridge Lender GSP identified a national bridge lender funding transitional assets to 80% of cost from $25,000,000 to $100,000,000. Five year terms are priced from 3.50% over LIBOR. Core asset classes in core and secondary markets will be considered. This capital provider will fund assets with zero cash flow and future fund draws, protecting the Borrower from negative arbitrage. Junior debt will be provided on a case-by-case basis. |
| | | 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 | | | Sponsor Networking Event; Downtown Los Angeles | George Smith Partners will host a networking reception upon the conclusion of the Los Angeles RealShare Conference October 21st. This function will be a short walk from the LA Convention Center. If you are available to join our production team for hors d’oeuvres and drinks, please email pr@gspartners.com for an invitation as space is limited for this event. | | | Pascale’s Perspective |
Notes on the Bond Markets --- Treasury yields are dropping as investors seek a safe haven. The 10 year T is down to 2.04% after hitting 2.30% exactly two weeks ago. The 10 year swap is actually 3-4 bps below the Treasury, an extremely rare occurrence (recently hovered between 5-10 bps above the Treasury). It is partially due to corporate bond hedging activity and expectations for LIBOR to remain low for an extended period. It will be interesting to see if LIBOR rates rise in step with the anticipated Fed hikes. Speaking of Corporate Bond Issuance – 3 huge bond sales were reduced or pulled from the market this week (Santander, CBL, Westfield Corp) as spreads between Treasuries and Corporates widened. Why? After years of massive corporate bond issuance at tight spreads/low coupons and continued jitters regarding global growth prospects, investors are less confident in basic corporate fundamentals going forward in a rate normalizing environment. The same issues are clouding the prospects of emerging market debt and high yield junk bonds. Huge amounts of debt was issued in the last 5 years and investors are nervous about falling energy prices (bonds are a favored vehicle of financing for sub investment grade energy companies) and the ability of emerging markets to thrive in a rising rate environment. Bond liquidity issues – after Dodd Frank, Bank trading desks can no longer make the market in Treasuries and corporate bonds. Meanwhile, bond funds now own a much larger percentage of a rapidly growing market (bond markets continue to grow faster than equity markets). The issue is that bond funds, algorithm and high speed trading, is changing the way bonds are traded and may cause illiquidity during times of stress, thereby increasing volatility. So as we enter the normalization period with rising rates, it is more uncharted territory with no precedent. CMBS: Even after the recent widening, borrowers are locking in good rates due to the drop in treasuries/swaps. Full leverage 10 year loans are being priced at 240-260 over the swap, so all-in coupons back down to 4.50%. …stay tuned… David R. Pascale, Jr.
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©2015 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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