|
FINfacts™ XXIV – No. 40 | October 5, 2016
|
|
|
| Prime Rate |
 3.50 |
| 1 Month LIBOR |
 0.53 |
| 6 Month LIBOR |
1.25 |
| 5 Yr Swap |
1.25 |
| 10 Yr Swap |
1.54 |
| 5 Yr US Treasury |
1.25 |
| 10 Yr US Treasury |
1.71 |
| 30 Yr US Treasury |
2.43 |
|
|
|
Rate: 3.50% Fixed (Initial 7 Years)
Loan-to-Value: 70%
Term: 30 Years
Amortization: 4 Years Interest Only; 30 Years Thereafter
Prepayment: 3%, 3%, 2%, 2%, 1%, 1%, Then Open
Non-Recourse
Lender Fee: None
|
|
George Smith Partners successfully sourced $9,177,000 in non-recourse first mortgage financing on an 80-unit, 99% occupied multifamily community located in a Northern California agricultural market from a regional portfolio lender. Sized to 70% LTV, the loan has a 30-year term and is fixed for seven years at 3.50% then floats at 6 Month LIBOR rate + 2.35%. This cash out refinance has four years of Interest Only payments in order to maximize cash flow before converting to a 30-year amortization schedule, and is open for prepayment after Year 6 of the loan term. The loan has no tax, insurance, or capital reserve impounds.
|
|
|
|
George Smith Partners is placing bridge loan requests below break-even coverage with a non-recourse capital provider on a national level. Funding from $5,000,000 to $25,000,000, pricing ranges from LIBOR + 450 to 550 for a three year term to 80% of total capitalization. Significant reposition construction, (excludes ground-up), tenant improvements and lease costs are funded on a non-recourse basis.
|
|
|
Lenders Feel Regulatory Pressure on Construction Loans |
|
Approximately 80% of FDIC losses during the “Great Recession” were due to nonperforming commercial real estate loans, primarily construction and bridge loans, which resulted in the creation of various regulations to prevent history from repeating itself. The High Volatility Commercial Real Estate (“HVCRE”) regulation within Basel III is one of the most prolific new mandates and requires lenders to hold 50% greater reserves for HVCRE loans (12% vs. 8%). As such lenders now have to reserve additional capital not initially budgeted when pricing the loans, which immediately increased construction lenders’ cost of capital. Construction loans can, however, be structured to avoid the HVCRE rule if 1) the sponsor invests cash equal to or greater than 15% of the as-complete value and 2) loan documents covenant that no distributions can be made by the partnership until the construction loan is refinanced out. The 15% cash requirement can be a difficult pill to swallow for sponsors who have owned land for some time and likely have significant imputed equity due to a low cost basis.
Although construction lenders have reacted to HVCRE’s introduction by tightening underwriting metrics and increasing pricing, each lender interprets HVCRE guidelines slightly differently. George Smith Partners’ deep and specific knowledge of the construction lending market allows Sponsors to adeptly navigate these headwinds and continue to source construction financing in these challenging times. Kyle Howerton
|
|
|
|
Mario Draghi may be dressing up like Ben Bernanke for Halloween this year. Markets were expecting ECB bond buying to continue well into March 2017. But now, some reports from Europe suggest that the ECB may wind down bond buying by $11 billion a month. Markets reacted with the Euro spiking in value and bond yields rising, similar to the US Fed announcement regarding bond purchase tapering in 2013 (the 10 year T hit a multiyear high of 3.00%). Note that this is just a central bank indicating they are pulling back on the extraordinary stimulus of bond purchasing, not raising rates or selling any existing bonds. This shows how much markets have become dependent on measures once thought to be unthinkable. Other Factors: (1) More hawkish statements from Fed governors; (2) Oil prices (9.3% jump in crude futures in 4 trading sessions). TIPS (Treasury Inflation Protected Securities) yields now project a 1.68% inflation rate, closer to the Fed target of 2.0%; (3) Strong US economic reports, specifically ISM (service sector) and factory investment. The futures market sees a 64% chance of a Fed rate increase at the December meeting with several major bank economists predicting a 2.0% 10 year T yield by end of the year. Stay Tuned. David R. Pascale, Jr.
|
|
Constellation Place
10250 Constellation Blvd., Ste. 2700
Los Angeles, CA 90067
|
|
|
|
© 1999 - 2024 George Smith Partners, Inc. DRE # 00822654 FINfacts is an ePublication of George Smith Partners, Inc. For Promotional Purposes Only. All Rights Reserved.
|
|
|
|
Hi, just a reminder that you're receiving this email because you have expressed an interest in George Smith Partners. Don't forget to add finfacts@gspartners.com to your address book so we'll be sure to land in your inbox!
|
|
