| Transactions of the Week |  | |  | | Transaction Description: | | $53,700,000 Multifamily Construction Financing George Smith Partners successfully placed the construction debt financing for a 385 unit luxury Montclair apartment community. This follows the $25,000,000 Joint Venture equity component GSP sourced in March for the same Borrower. The FINfacts article detailing terms of the equity piece may be found in the in the archives section of our website. The "shovel ready lot" is adjacent to a major regional mall. The Property represents the pinnacle of the area's redevelopment into a pedestrian promenade, catalyzed by MetroLink's Gold Line light rail extension. The extension will provide direct access to Downtown Los Angeles. |
Challenge: The sponsorship required financing that precluded full recourse to the individual investors. The asset location, although text book fundamentally, is located in an area where construction lenders have not been active in recent years. |
Solution: GSP invested a considerable effort educating lenders; articulating the sponsors business asset guaranty program. By utilizing pledged liquid accounts, GSP was able to quantify the guaranty structure. GSP also demonstrated the strength of the local market for this project. Various economic factors and reports for multifamily absorption and rates were utilized to support this ground-up request. This data confirmed that development for this project is indeed viable. | | | Rate: LIBOR + 2.75% | | Term: 3 Years + 1 Year Extension | | Amort: Interest Only | | LTC: 65% of Total Cost | | Recourse: Limited to a capitalized entity & business assets of the Guarantors Brokers: Malcolm Davies, Michelle Lee | | | |  | | Transaction Description: | | $1,208,000 Los Angeles Multifamily Cash-Out Refinance GSP arranged the refinance of an 8-unit North Hollywood apartment building. The Borrower, a Tenants-In-Common (TIC) group of investors, required a cash-out refinance for a free & clear property that they have owned and managed since 1995. The Borrower wanted to take advantage of current historically low interest rates and to access available equity. GSP was able to negotiate the requirement for only one TIC investor to execute the carve-out guarantee. | | | Rate: 4.11% | | Term: 10 Years | | Amort: 30 Years | | LTV: 75% | | DCR: 1.44 | | Prepayment: Yield Maintenance | | Non-recourse | | Lender Fee: Par | | Brokers: Jonathan Lee, Shine Cheng | | | |  | | | | Joint Venture and Preferred Equity A former debt fund has repositioned itself for wider returns and is now underwriting new Joint Ventures, Preferred Equity and Participating Senior Notes. DPOs are high on their radar as well as residential lots. They will consider special purpose assets with viable exit strategies. The fund's niche is middle market transactions in secondary locations. Ground-up construction will be underwritten on a very selective basis. Returns start in the low teens for transactions of $4,000,000 or more. | | | | Hot Money | B Paper Abounds…. Numerous funds are sitting on pools available for deployment at terms and yields relegated to Hard Money lenders. To broaden their marketing net, originators have softened their rates and fees for higher quality assets. Assets that are not quite ready for institutional funding, yet are "near bank" quality - qualify for "Soft Money" terms. Rates range from 7% to 9% with fees capped at 2 points. Funding is nationwide and typically on a non-recourse basis with LTVs as high as 70%. Debt Coverage should be at least break-even at close or have executed pre-leasing in place to mitigate cash flow shortage. Loans to $10,000,000 typically fund in 30 to 45 days. | | | 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. | | | GSP Welcomes Katie Rodd | George Smith Partners is proud to announce the addition of Katie Rodd to our production staff. Managing Partner Gary E. Mozer announced Ms. Rodds' engagement as a "tremendous addition to our firm". Ms. Rodd joins GSP after 10 years in the roles of CMBS originations and underwriting in both New York and Los Angeles. Mr. Mozer went on to comment that "Katie's first-hand capital markets experience will add an enormous depth to our already experienced staff". As a Senior Vice President, Katie will continue her originations responsibilities with a focus on permanent and bridge loan products. Congratulations Katie and Welcome! | | | In The News | Founding Partner Gary M. Tenzer was recently quoted in Pensions & Investments on-line magazine. His comments on capitalization rates for core product types maybe found in the "CalPERS Moves into Core Real Estate" article here. | | | Pascale's Perspective | Focus on LIBOR, what is the potential fallout of the LIBOR fix scandal? LIBOR is used as a benchmark for floating rate loans and is part of the Swap calculation for CMBS loans (the 10 year Swap rate is basically what a fixed rate payer will accept from a floating rate payer). Over $300 billion in derivatives are tied to LIBOR also. LIBOR was created in 1986 as a benchmark index based on lending between banks (LIBOR stands for London InterBank Offered Rate). These rates were intended to be a bottom line benchmark, representing the rate that Banks charge each other for unsecured short term loans. However, in the wake of the credit crisis, the short term unsecured lending market dried up. Banks now borrower from central banks now that virtually unlimited swap lines have been opened up by the main 5 central banks. Any short term lending between banks is often secured by collateral at this time. Interbank loans of longer than 30 days is rare. This is significant because 90 day LIBOR is one of the most utilized indices in the world. It is the "other end" of the 10 year Swap rate. It is based on estimates and theoretical assumptions, not actual transactions, and therefore open to question. What will replace it? Many are calling for a rate based on actual transactions and not estimates. The GCF (General Collateral Financing) Repo Index Futures Index was launched last week and received a lot of attention. EONIA (Euro Overnight Index Average) is a weigted s an effective overnight interest rate computed as a weighted average of all overnight unsecured lending transactions in the interbank market. Any transition will have to be gradual in order to avoid market shocks. …Stay Tuned… David R. Pascale, Jr | |
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