| Transaction of the Week |  | |  | | Transaction Description: | | $11,200,000 Permanent Loan with "Rolled-up" Tenant-In-Common Ownership GSP successfully arranged a 10 year, fixed rate apartment refinance with an A/B note structure to allow for maximum loan proceeds. The Class-A property is located in a secondary Kansas location. |
Challenge: The subject property was held by 27 Tenants-In-Common. There are few lenders who are comfortable financing Tenant-In-Common structures. Those who do consider TIC requests refuse to underwrite 27 separate borrowers. In addition, the owners were seeking senior and mezzanine financing in order to satisfy their existing note without the injection of new cash. Although offering a sub-80% loan to value, the new lender would have to underwrite down to a 1.07 debt coverage ratio to reach the requisite loan amount. |
Solution: The 27 owners agreed to "roll-up" into a new LLC using IRS code 721. This allowed them to contribute the property to a new ownership entity without realizing a capital gain or loss. While the "roll-up" satisfied concerns with the type of ownership structure, many lenders refused to entertain the loan request without a high-net worth Sponsor. GSP identified a lender that is familiar with this specific Kansas submarket and fully understood the value of the real estate. This permitted the lender to overcome additional ownership structure concerns. The subject lender was also able to provide an A and B note structure, allowing them to underwrite down to a 1.07 debt coverage ratio. The lender intends to securitize the A note and hold the B note on their balance sheet. GSP identified a lender that not only was able to fund the entire loan amount, but offered very a competitive "all-in" rate. This single funder was a preferred alternative to using separate lenders and the requirement of tri-lateral agreements for the senior and mezzanine pieces. | | | Rate: 6.50% | | Term: 10 Years | | Amort: 30 Years | | LTV: 76% | | DCR: 1.07 | | Prepayment: Defeasance | | Non-recourse | | Lender Fee: Par | | Brokers: Allison Higgins, Steve Bram | | | |  | | Hot Money | GSP identified a fund manager who has effectively purchased several Life Insurance Companies and is currently funding Bridge and Permanent debt nationwide. This capital source will finance the four primary product types plus flagged hotels in major markets. Destination assets will not be considered. Permanent loan requests must exceed $10,000,000, and will be structured with a 30-year amortization due in 10 years. Bridge financing must also exceed $10,000,000. Non-recourse loans are available starting as low as 6.50% interest-only with underwriting to break-even DCR and a 70% LTV. | | | Hot Money | Commercial banks continue to tighten their multifamily loan pricing in competition with agency financing. One west coast bank will price as low as 3.5% fixed for 5 years in exchange for a meaningful depository relationship. Several non-agency capital providers are offering full term interest-only and/or non-recourse on fully leveraged loans. Commercial banks compete with agencies on 5 year fixed rate loans with additional net proceeds, prepayment flexibility, and the ability to lock rate at application. Aggressive Bridge lenders will fund as high as 75% of the stabilized value with break-even coverage at close for experienced operators and a personal repayment guarantee. Non-recourse bridge loans are available for larger assets and constrained to 65-70% of cost with pricing in the low 300s over Libor. | | | 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. | | | In The Press | George Smith Partners CEO Gary E. Mozer was recently quoted by National Real Estate Investor on the status of non-performing loans currently held on-book by banks. The entire article is available on-line and may be found here. | | | Pascale's Perspective | Greece and the Super Committee It's now quite apparent that the Euro situation was not "fixed" by the grand deal on Greece announced in late October. The much feared "contagion" has begun to engulf Italy, Spain and possibly France. Germany stands alone as the safe haven for the continent. The combined Euro bond is now considered a German backstopped bond and is priced accordingly. World markets are waiting for the ECB to act like the US Fed: expand their balance sheet, print Euros and buy bonds. However, the political will is not there, especially in Germany where long memories of 20th century hyper inflation linger among the populace. The effect is that credit markets are seizing up slowly, 60 and 90 day LIBOR rates are steadily rising. Borrowers with LIBOR based loans should take note. The only thing preventing a 2008 type sudden large spike in LIBOR are the massive swap lines and liquidity being provided by the big central banks. Treasuries continue to benefit from the flight to quality for now. However, the Congressional "SuperCommittee" is still far from an agreement and may delay the triggers put in place as part of the debt ceiling deal. This may upset markets and cause further downgrades by the rating agencies. ....Stay Tuned.... David R. Pascale, Jr. | |
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