| Transactions of the Week |  | |  | | Transaction Description: | | $10,000,000 Facility Collateralized by Northern California SFR Rentals George Smith Partners successfully placed the $10,000,000 facility to fund pools of single family residences leased as rental investments. The renovated and fully leased/occupied single family detached homes are located in sixteen counties surrounding the Bay Area. Additional housing units will be funded under pre-determined criteria outlined below. |
Challenge: Because of the unique product and loan type, the terms of the loan agreement had to be drafted organically from the ground up. The properties at acquisition do not always meet the Lender's typical lending requirements; potentially precluding the Borrower from executing their business plan. Placing security interests on each home purchased in a portfolio of hundreds presents a logistical nightmare for both the Lender and Borrower. |
Solution: By segmenting the loan into three periods (Accumulation, Fixed Rate IO, and Floating Rate Fully Amortizing Loan Period), the Borrower enjoys greater flexibility in achieving DSCR coverage as properties are stabilized. The Borrower first acquires properties in an acquisition pool, thereafter transferring the homes into a long-term holding pool upon stabilization. The Lender secures its interests in the properties by way of a blanket deed of trust - an efficient and streamlined process with individual assets free from any liens or encumbrances. | | | Rate: 5.0% for first 5.5 Years; LIBOR+3.5% thereafter w/5.0% Floor | | Term: 15.5 Years | | Amort: 5.5 Years IO | | LTC: 60% + Renovation Costs to 15% of Purchase Price | | DCR: 1.20 | | Prepayment: None subject to LIBOR contract breakage | | Lender Fee: 1.0% | | Recourse: Entity-level w/standard "carve-outs" to individuals Broker: Malcolm Davies | | | |  | | Transaction Description: | | Arms-Length Non-Performing Note Purchase on a Southern California Mixed-Use Property to 85% Loan-to-Purchase GSP successfully placed the 85% loan to purchase debt on the distressed note for a first time note purchaser. The original loan funded a large mixed use property that was part of a complex New Market Tax Credit (NMTC) Project. The note seller mandated a quick sale with a five day due diligence period and a five day close. GSP secured a two-year loan for 10.25% interest only. |
Challenge: Unlike traditional real estate assets, note purchasers only acquire the legal right to collect previously contracted mortgage payments; and in event of default, foreclose on the property. A note lender has very limited options to secure their interest in this type of transaction. The quick timing and knowledge that the original borrower is non-cooperative, using every legal tool to delay or block lender actions, added a significant complexity to this transaction. In addition to being contested by the primary borrower, the NMTC structure of the borrower increased the difficulty of this transaction. |
Solution: GSP used its' expertise and strong relationships to identify a private equity lender who had financed 3rd party contested notes and worked with the client to understand the collateral loan and the NMTC structure. With the LOI signed on day two of the five day due diligence period, GSP worked with the client to complete legal and due diligence before the end of the five day period. GSP successfully closed the transaction for the client within the five day period after the due diligence period as required by the note seller. | | | Rate: 10.25% Interest Only | | Term: Two Years | | LTC: 85% | | DCR: 1.20 | | Recourse | | Broker: Bryan Shaffer | | | |  | | | | Portfolio Bridge/Construction/DPO Lender Expanding West Coast Presence. GSP met with an East Coast Bank opening their Los Angeles based originations office, offering traditional debt financing for less than traditional structures. Typically non-recourse, this bank will fund value-add reposition transactions to 65% of cost at below break-even coverage. Ground-up construction requests are also being underwritten for the primary four core product types. While unable to compete with money center banks on rate, this portfolio lender "thrives on unique deal structures" and will fund more complex facilities/requests. Their current focus is on note purchases; both arms-length pools or individual Borrower DPOs. Requests range from $10,000,000 to $100,000,000 and priced at LIBOR+500/600. The purchase of a cap or collar is not required. | | | | Hot Money | 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. | | | 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. | | | In the Press | Founding Partner Gary E. Mozer was recently quoted in Multifamily Executive On-Line on strategic development partnerships. Mr. Mozer's comments and the balance of the article may be found here. | | | Pascale's Perspective | Treasury Rally! Treasuries rallied today after several days of selling. The 10 year T is at 1.72%, yield is down 9 bps since yesterday. Today's disappointing housing data broke the recent streak of positive economic news. Also, the release of the Federal Reserve minutes (from the August 1 meeting) indicated easing or some action is needed "fairly soon". Does this mean that another round of bond buying will be announced at the next Fed meeting in mid-September? or possibly at Bernanke's upcoming speech at the economist meeting in Jackson Hole on August 31? Look for potential "let down" selling if both of those dates pass without firmer indications of QE3. …stay tuned... David R. Pascale, Jr. | |
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