FINFacts February 29, 2012

Volume XX  |  No. 9  |  February 29, 2012

Letter to the Editor

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KEY RATE INDICES Prime Rate  3.25% 1 Month LIBOR  0.24% 5 Yr US Treasury  0.87% 5 Yr Swaps  1.13% 12-MAT  0.17% 3 Month LIBOR  0.49% 10 Yr US Treasury  1.98% 10 Yr Swaps  2.06% 11th Dist COFI  1.22% 6 Month LIBOR  0.75% 30 Yr US Treasury  3.09%

Transactions of the Week Transaction Description: $8,200,000 Cash-Out Refinance on a 117,156 SF Two-Tenant Flex Building in Poway, California George Smith Partners successfully placed the $8,200,000 cash-out refinance of an industrial building in Poway, California. The Sponsor was facing a loan maturity within thirty days, and required a return of a portion of his equity. Challenge: Although the property was 100% occupied, one tenant (56% of sf) rolls in 2014 while the second tenant has a termination option in January 2013. The Sponsor was experiencing changeover in operations due to the family's patriarch passing. Solution: Leaning on our underwriting background, GSP demonstrated the strength of the tenants, and completed a full underwrite of the transaction in advance of identifying a capital provider. Prior to choosing a Lender, GSP worked with potential capital providers to engage all third party reports. By fast-tracking the request from start to finish, GSP closed the life company loan within 30 days of application. Rate: 5.20% Term: 10 Years Amort: 30 Years LTV: 73% Prepayment: Yield Maintenance Non-recourse Brokers: Gary E. Mozer, Michelle Lee Transaction Description: $12,500,000 Purchase of a Ventura County Industrial Building Raffi Sarkissian and Manuk Boyajian facilitated the acquisition funding of the 186,700 square foot owner/user industrial building under the SBA 504 program. The 90% of purchase loan is fixed for the full term and self-liquidates over 25 years. Under the 504 guidelines, a local bank funded a 50% senior position fixed for 25 years while the SBA funded 40% of the total capital stack also fixed but self-amortized over 20 years. The loan is full recourse to all borrowers and related entities. Challenge: The Borrowers are a consortium of California entities with respective individual members and owners that added volatility to the underwriting process. Having multiple guarantors increased the requirements of the financial documents increasing the complexity for our underwriter. Transactions of this size are rare for the SBA and invited their own host of challenges. Solution: GSP worked diligently with the SBA in ensuring the underwriting and processing was completed in a timely manner and met all deadlines for escrow contingencies. GSP was able to secure special exemptions from the SBA with regard to loan size and Borrower structure for this acquisition. Rate: 4.75% Fixed Term: 25 Years Amort: 25 Years LTC: 90% Recourse Lender Fee: Par Brokers: Raffi Sarkissian, Manuk Boyajian Hot Money No MAC Clause CMBS Execution George Smith Partners has closed loans with a privately held corporation that funds fixed-rate and floating-rate commercial loans poised for CMBS execution. These transactions are held on the corporation's balance sheet. Loans may be pooled for securitization or held on-book should instability return to the secondary markets. Stabilized fixed-rate transactions may be rate-locked at application with a two-point deposit and no margin call. There is no rate add-on for the 60 day rate-lock. Secondary market fluctuations will not sideline the transaction as there is no Material Adverse Change (MAC) clause in the application. Commercial transactions are sized to 75% LTV and a 1.25 DCR from $5,000,000. Select secondary markets and "story deals" will be considered for stronger borrowers. Hot Money Non-Recourse National Investor Program for Single Tenant Assets George Smith Partners is working with a National Institutional Capital Provider that is lending on single tenant assets for owner/users or investors on a non-SBA platform. Public companies rated BB (S&P) or better will be underwritten with amortization schedules co-terminus with the lease. Private or unrated companies will be rated by the credit officer upon presentation of corporate financials. Rates are fixed for three years at 6% then re-set based on the credit quality of the tenant. Cash flow sweeps may be structured to provide additional funds at close to break below the standard 1.20 debt coverage requirement. Pascale's Perspective Regulatory Update:  Dodd Frank, Volcker Rule, Basel III…..what are the consequences (both intended and unintended)?  The financial markets are trying to gauge the effects of major regulatory reforms enacted in the wake of the 2008 credit meltdown.  Under Dodd Frank, large banks are required to contribute to a "too big to fail" fund created in order to avoid government bailouts in the future.  The Volcker rule limits some (but not all) proprietary trading by FDIC guaranteed banks.  The new international Basel III standard require SIFI's (Systematically Important Financial Institutions) to raise more "Tier 1" capital aka liquid reserves as a buffer to protect against credit fluctuations.  Dodd Frank also proposes "risk retention" standards yet to be finalized that were intended to strengthen the RMBS market, but may affect CMBS.  Bottom line: Bank profits will be impacted and they are hyper aware of regulators including the Fed, Treasury, Office of Comptroller of Currency and the newly created Bureau of Financial Protection.  The major banks are looking for relationships with good sponsors that can do repeat business.  "One-off" transactions are left to the regional and community banks.  We are also seeing non-bank lenders getting aggressive.  The new regulations are also leading to a spate of mergers as small community banks feel they are not able to comply and still be profitable. ...Stay Tuned...  David R. Pascale, Jr. 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

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©2012 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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