| Transaction of the Week |  | |  | | Transaction Description: | | $2,370,000 Refinance of 57-Key Howard Johnson Ameet Chagan placed the $2,370,000 refinance of an exterior corridor economy class motel built in 1961. The Howard Johnson flag services the San Mateo and San Francisco International Airport markets. The floating rate loan is set at Prime plus 1.00%, floored at the 4.25% start rate for 7 years, and amortized over 25 years with no prepayment penalty. The Borrower is a second generation hotel operator with a portfolio of hospitality assets in the Bay Area. |
Challenge: The Borrower was already enjoying a market rate and term on a first trust deed for $1,500,000. The first position loan was acquired two years ago and came with a sizable origination cost. The Borrower wanted to refinance a double digit interest only second trust deed of $730,000, but feared the net cost of the new debt including prepayment penalties and sunken origination costs from the previous refinance would not allow any net savings. The asset quality and size of the transaction precluded the property from being financed through more established institutional lenders. |
Solution: GSP calculated a break even interest rate that would net savings inclusive of all costs associated with the new loan. GSP identified a lender with an allocation for hospitality and the ability to recognize the superior in fill location of the real estate. The Borrower's consistent re-investment in the asset was evidenced by the upgraded amenities. GSP also negotiated a commitment fee 50 basis points below the initial pricing guideline. The 25 year amortization schedule incentivized the Borrower to move forward as the longer amortization significantly lowered monthly payments in comparison to their current loan payments. | | | Rate: Prime + 1.0% w/4.25% Floor | | Term: 7 Years | | Amort: 25 Years | | LTV: < 60% | | Prepayment: None | | Recourse | | Lender Fee: 1.0% | | Broker: Ameet Chagan | | | |  | | | | SoCal Portfolio Lender funding Bridge, Perm & Construction to $10,000,000. GSP identified a Southern California Bank currently funding investor commercial assets to 70% of value for construction, bridge or fully stabilized properties. Asset types include the four primary products based in Southern California and the Bay Area. Out-of-state transactions will be considered for strong SoCal borrowers. Ground-up construction is underwritten to 70% of actual cost. All products require a repayment guarantee. Pricing currently ranges from Prime + 1.0% to 4.90% for 10 years fixed on stabilized assets. A banking relationship is not required. | | | | Hot Money | Bridge Financing from Money Center Banks Several Money Center Banks have opened their balance sheets traditionally reserved for existing customers to finance bridge/reposition assets and selective ground-up construction projects. Although non-recourse options are more the exception than the rule, they are quoting low LIBOR +250 terms on an interest only basis down to a break-even going-in coverage. The driving motivation for these portfolio lenders is to position Bridge transactions for a CMBS execution upon stabilization. The banks are utilizing their balance sheets as a feeder for CMBS product. Assets are limited to core products and select healthcare uses. Requests will range from $10,000,000 - $75,000,000 to 75% of current value. Some cash flow must be in place at funding for reposition assets with stabilization & exit anticipated within three years. | | | 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. | | | Speakers Corner | Co-Founding Principal Steve Bram will be a guest lecturer for two UCLA extension classes next week. He will provide insights on Hotel Market and Feasibility Analysis for one class and Creative Financing Structures for the second class. | | | Pascale's Perspective | Spotlight on Treasuries… The 10 year Treasury is at 1.82% today, up 35 bps from 1.47% on July 16. Today it broke through a key technical level of 1.77%. Why the spike? 3 main reasons: (1) The fear factor is ebbing. The markets are less afraid of European issues, at least this week, with the VIX index low and investor's risk appetite gaining; (2) Positive US economic news including 160,000 new jobs (versus economist forecasts of 100,000); and (3) Inflation is back. Oil and food prices are spiking. The drought conditions in the US and abroad will affect food prices into the winter. European fears may return (some are predicting a Greek exit next month), and economic news is still "spotty"…Has the "long bull run in treasuries" ended or is this just an aberration…stay tuned…David R. Pascale, Jr. | |
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