| Transaction of the Week |  | |  | | Transaction Description: | | $2,145,000 10 Day Quick-Close Acquisition Financing for an Atlanta REO Apartment Building GSP successfully placed the acquisition financing for 172-unit apartment building that was foreclosed on by the prior lender. The property is currently 90% occupied at below market rents. While not a true distressed asset, the former lender was not interested in owning the property, and liquidated it for $3,300,000 ($19,200 per unit). The property requires $300,000 of cosmetic improvements for maintaining or upgrading gates, fences, swimming pool & roof repairs, and stairwell reinforcement. |
Challenge: The borrower is an absentee owner, and required quick close financing to accommodate their escrow commitment. Traditional "Hard Money" was not an option as the Borrower was rate sensitive and required higher leverage debt. Certainty of execution was also mandated to avoid forfeiture of the Borrowers' non-refundable escrow deposit. |
Solution: GSP identified a reliable private equity capital provider who is comfortable with the Borrower's business plan despite its out-of-state location. The lender provided an aggressive loan structure and proceeds at favorable pricing and ultimately closing in 10 days from signing of loan application. | | | Rate: 9.5% | | Term: 2 Years | | Amort: Interest Only | | LTC: 65% | | Prepayment: 6 Month Locked then Open | | Recourse | | Lender Fee: 2.5% | | Broker: Gilda Rivera | | | |  | | | | Nationwide Non-Recourse Bridge & Mini-Perm Program from $1,000,000 to $10,000,000. GSP is working with a national balance sheet bridge-loan provider advancing up to 70% of purchase price on a non-recourse basis. The LTV will be limited to 65% on refinances and is not subjected to secondary internal underwriting. This capital provider will advance to 100% of good news dollars going forward. Note purchase financing will be considered for performing, non-performing and distressed transactions. Assets should be B quality or better, although sponsor qualifications are less stringent. Pricing ranges from mid-7's to 9% for 3 to 5 years; interest only with one point origination and one point upon exit. | | | | Hot Money | New $200,000,000 Equity Fund Roll-Out A national private Joint Venture Equity provider will be launching a new fund next week targeting total capitalizations from $10,000,000 and up. Equity contributions as small as $3,000,000 will be considered on a 90/10 co-invest. Story transactions with some cash-flow in place are being underwritten to a high-teens/low-twenties IRR for up to a five year hold. DPOs are also considered with a fresh capital injection from the Borrower. Their typical developer/partner is a smaller shop although institutional clients have also utilized their funds. Ground-up developments are not available under this program although assets requiring construction completion will be considered. | | | 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. | | | California State-Wide Multifamily Trends | The following is part 2 of a 2 part summarization of recently attended multifamily symposiums from around the state. Part 1 may be found in last week's FINfacts. Capitalization Rates California Multifamily cap rates are "frothy" due in part to what appears to be an unending decline in yield on T-Bills. Many long-term holders are now cashing in their chips and selling their buildings at 4.5% cap rates. Seller motivation is high to liquidate rather than working their assets hard, raising rents, etc. to generate higher returns over the next 2-3 years. The competitiveness is dramatically shrinking the return gap between Class A and Class B product. Cap spreads between primary and tertiary markets have shrunk by 200 basis points. Buyers are seeing historically low interest rates, a term used so often in the past three years it has lost much of the emotional punch it once held. The typical shorter term, "improve, raise rents and flip" investors are receding as more players are looking at a 7-10 year horizon in order to hit their yields by utilizing non-recourse agency funds and slowing raising rents nominally over a 10 year horizon. Several funds are comfortable paying a significant premium in what are felt to be recession-proof markets. Some West Los Angeles properties are now trading at a 2% cash-on-cash in expectation of a long term return. Development: Equity, Underwriting, Costs and Land Sales Voracious investor demand is driving more developers to ground-up construction as opposed to acquiring older existing apartments. Debt and equity capital is readily available as sponsors seek a stronger economic business plan. Traditional bank construction debt is 3% or less (L+225-300) as institutional equity has given up chasing 20% yields. The new equity mantra is now "15% is the new 20%" for returns. Four institutional developers responded to "what ROC would you underwrite to build a 100 unit in West Los Angeles": 5.0% - 6.0% - 6.0% - 5.25%. All four were unanimous in utilizing 3.5% annual trended rents for their pro-forma. Topics of cost were more pessimistic. Most developers believe hard costs (especially labor) will spike. Land costs are trending up as development has once again become realistic with obtainable financing. A recent Pasadena site received 20 written offers, with the winning bid assuming a 5.5% un-trended return on cost. Multifamily investment sales brokers believe that we have now returned to 80% of the market height reached in 2007. Jonathan Lee | | | In The News | Managing Director and Founding Principal Steve Bram was recently quoted on the recession's demand impact to the multifamily market cycle in Multi-Housing News Online. Steve's comments and the entire article may be found here. | | | Pascale's Perspective | EU Summit Pre-Game This week's EU Summit "pre-game" commentary indicates that the European banking and political leaders are coming close to the credit markets "wishlist", ie more integration. A report prepared by the European Commission and ECB called for a road map leading to a "Pan-Euro" banking system with a single regulator, treasury and deposit insurer. The ECB will act more like the US Federal Reserve. This will decouple banks in troubled countries (Greece, Spain, Italy) from the "adverse feedback loop" they are now in with their corresponding sovereign governments. As far as the long awaited "Eurobond", the report indicates some "partial common debt" issuance is possible such as the pooling of short term funding instruments. These steps now seem inevitable in order as all parties try to avoid major market disruption. ….stay tuned… David R. Pascale, Jr. | |
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