| Transaction of the Week |  | |  | | Transaction Description: | | $7,500,000 Loan Modification GSP arranged the modification of a loan that was in default of its covenants. The $8,000,000 original loan was full recourse to the borrower, and was current with significant term remaining. The bank subsequently found the loan to be out of compliance with its 65% loan to value covenant and therefore accelerated maturity. The subject property, a creative office building in West Los Angeles, is located on a major artery in a business district. Although the property's value had clearly declined since the loan was funded, monetary default was not looming. The acceleration placed the borrower in some distress due to pending lease roll over and associated difficulties with refinancing. GSP used its relationships with bank personnel to reestablish communication, then presented a detailed critique of the bank's appraisal and recommended a loan modification structure that was of mutual benefit. The bank agreed to a new appraisal, which corrected errors in the earlier report, and ultimately modified the loan. The bank required a $500,000 pay down, and shortened the loan maturity. The modification avoided foreclosure or legal action, and provided enough time and cash flow to work through lease roll and refinancing. | | | | |  | | | | Joint Venture Build-To-Suit Construction Equity from $500,000 GSP has identified a Joint Venture construction investor providing equity capital for ground-up build-to-suits pre-leased to credit and non-credit users nationwide. Typical product types are franchised chain restaurants and medical uses including rehab "hospitals". Equity contributions can be as small as $500,000, with a maximum of $2,000,000 per project. The equity investor will consider one-off transactions although portfolios are preferred. A 20%+ IRR is required with a 10% developer co-invest. Timing is usually 70 days from introduction to funding. A sale of the asset at certificate of occupancy is typically required to obtain the IRR threshold. | | | | 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. | | | 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 | Yesterday's move among the world's major central banks (US, Canada, Europe mainland, England) was an effort to thwart a 2008 style meltdown in the credit markets. China also participated by lowering reserve requirements. The massive worldwide liquidity infusion guarantees that banks will have access to capital. Observations: (1) The central bankers have been working together now for 4 years and coordinated action is more possible than before; (2) This is a "do over" where damage/contagion from an impending Euro collapse can be contained by "front loading" the process with the liquidity injection. This will hopefully prevent cash hoarding and a seizing of the overnight and repo markets that are the daily "lifeblood" of the world's economy; (3) The situation in Europe is dire. Several currency clearing houses are starting to prepare for the reintroduction of the drachma, lira, etc, anticipating a partial or total Euro collapse. Germany's willingness and/or ability to save the day is in doubt; (4) Central bankers are not in any fear of inflation or are more fearful of meltdown ...Stay Tuned... David R. Pascale, Jr. | |
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