FINFacts January 18, 2012

Volume XX  |  No. 3  |  January 18, 2012

Letter to the Editor

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KEY RATE INDICES Prime Rate  3.25% 1 Month LIBOR  0.28% 5 Yr US Treasury  0.80% 5 Yr Swaps  1.12% 12-MAT  0.18% 3 Month LIBOR  0.56% 10 Yr US Treasury  1.89% 10 Yr Swaps  2.02% 11th Dist COFI  1.20% 6 Month LIBOR  0.79% 30 Yr US Treasury  2.94%

Transaction of the Week Transaction Description: Foreclosure Avoided! $7,900,000 Bridge Loan Funded in 7 Days - Closed December 30th. GSP arranged financing for a vintage historic Bay Area warehouse. The 28,000 s.f. property was fully renovated in the early 2000's and is leased to a single tenant for creative office use. The building is fully entitled for 74 units of residential (For Sale or Rentals). The Sponsor contacted us with less than 2 weeks remaining in the year and needed to close by year-end or lose the property to foreclosure. The loan funded at below break-even DCR and the Lender did not require an interest reserve to maximize proceeds at closing. Challenge: The Sponsor had a hard payoff date by year-end with an executed deed in lieu. The Borrower was under a forbearance agreement with the deed in escrow, meaning the Sponsor would lose the property on January 2nd. Solution: GSP sourced a Los Angeles private placement lender who closed in 7 days under the terms agreed to in the application. The Lender increased loan proceeds by $400,000 during the loan process. The Lender flew up and met with the Borrower the day the application was executed. The Lender agreed to accept some documentation (ie lease guarantee) post-close. GSP funded 3 loans with this capital provider in 2011. Rate: 12.0% Amort: Interest Only LTV: 70% Lender Fee: 3% Exit Fee: 2%  Brokers: Steve Bram, David R. Pascale, Jr. Hot Money More Capital than Good Deals!  Liquidity is abundant in the private lending bridge market. Several high net worth individuals and families have "suffered" loan pay-offs recently as more institutional capital returns to the debt market. GSP is working with one particular quick-close individual seeking to redistribute capital. Loan amounts will fall between $1,000,000 and $10,000,000, priced in the 7% to 8% range on cash flowing assets. The interest-only loans will be for a term not to exceed 18 months to 60% LTV. Higher LTVs are obtainable for strong recourse borrowers. Commercial assets require a phase 1, although no appraisal or property condition report is needed for funding. Lender fees range from 1% to 2%. Hot Money Single Tenant Note Acquisition/Refinance A National Credit Company has rolled out an aggressive note acquisition/refinance program targeting predominately single tenant uses. Single notes or pools of notes may be funded to 75% LTV and a 1.15 DCR. Single notes will range from $5,000,000 to $15,000,000 with no size limit on portfolios. Some multi-tenant transactions will be underwritten, although the majority of the revenue must come from a single tenant. Assets may be owner-user or for an investor borrower. Pricing will vary based on leverage, location, and credit quality. 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. The Basis of Commercial Real Estate Investing In a Recovery A majority of depository institutions, investment banks and life insurance companies initiated contracted lending policies for commercial real estate early 2007, just as the looming recession crystallized.  While a handful of lending institutions threw caution to the wind, the slowdown of financing could first be noticed in tertiary markets and on special use assets that had experienced a wave of optimism for several years.  Today, banking and life company partners are adamant about deploying capital.  If lending is moving forward once again, what do lenders truly believe about the health of our economy? While many economists and fund managers have a "wait and see approach" to 2012, commercial real estate applications are moving forward, all-be-it at a slower pace.  Applications signed today may take 90 days to fund in many cases.  It is widely noted that there is an abundant supply of liquidity in the market that has yet to find a home with distressed assets.   What happens to that capital when the market shows clear improvement?  Will you catch the incline at the right moment?  Is it reasonable to believe that the cost of debt or value of commercial real estate will slip much lower at this stage of the recovery? The lack of transactional activity has created a void in determining the basis at which to acquire an asset. Initially purchasing an asset in a secondary market appraised at $10 million for $10.8 million (due to the lack of supportable comparable sales) may seem foolish.  It is important to look where the recovery cycle is for that market.  In a frothy market, the prevailing market price might net $11.5 million for the same asset as you out-bid competitors.  Although your purchase is on par with market value, you are actually coming in at a higher basis for the same asset had you acted when investors waited for deal of the century that never materialized.  Ameet Chagan Pascale's Perspective 2012 Capital Markets – Lenders Flush with Capital   -- Capital providers across the spectrum have received their allocations and production goals, and competition is fierce for transactions.    CMBS pricing has tightened as bond buyers are less spooked about Europe and concentrating on the real estate.  We are seeing 10 year transactions pricing anywhere from 5.0-5.5% (compared to near 6.0% in late 2011).  More importantly, the "strike zone" is expanding.  Quote from originator: "The business model of lenders all bidding prime core transactions in great locations to the bone is so 2011 and unsustainable."  Lenders are quoting in secondary markets to fill their pools.  We have seen innovative structures including senior/mezz combinations, etc.  On lower leverage, CMBS and Life Companies will price into the mid 4% range for 10-year and lower on 5-year terms.    Mezzanine lenders have multiple pockets of funds with risk adjusted pricing anywhere from 9-15% depending on the transaction.    Non recourse bridge lenders (mostly funds) are competing on reposition and nearly stabilized transactions.  Quote from bridge lender: "The bigger the better, our appetite is huge and limited resources means we need larger deals."  Construction is back? Yes if it is well located multifamily.    Moneycenter banks are concentrating on major sponsors with repeat business, offering tight LIBOR based pricing.  Local and regional banks are picking up transactional middle market transactions and sponsors.  With indexes at historic lows and narrowing risk spreads, it's shaping up as a good time for financing.  Europe: At press time, Greece seems to be nearing a bond swap deal with their creditors, thereby averting a potential "catastrophic" default…    …Stay Tuned… David R. Pascale, Jr.

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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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FINFacts January 11, 2012

Volume XX  |  No. 2  |  January 11, 2012

Letter to the Editor

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KEY RATE INDICES Prime Rate  3.25% 1 Month LIBOR  0.29% 5 Yr US Treasury  0.82% 5 Yr Swaps  1.17% 12-MAT  0.18% 3 Month LIBOR  0.58% 10 Yr US Treasury  1.91% 10 Yr Swaps  2.06% 11th Dist COFI  1.20% 6 Month LIBOR  0.81% 30 Yr US Treasury  2.97%

George Smith Partners Closes 116 Loans in 2011 2011 was a productive year for George Smith Partners.  We experienced growth in all aspects of our business, with closed transactions increasing a healthy 30% over the 89 loans placed in 2010.  Highlights include 54 multifamily loans, 13 bridge/reposition loans, and 10 equity placements.  In addition to increased loan and transaction volume, we grew in personnel.  Most notably, we added two new senior producers to our firm, opening up Orange and San Diego Counties with local representation.  2011 also saw the return of two veteran GSP producers to the firm. Last year witnessed a notable return of capital to the marketplace.  We expect this trend to continue throughout 2012.  Many of the 53 capital sources that GSP funded loans with last year were not in the market from 2008-2010.  We also participated in the return of several loan types that have been missing since the Financial Crisis began in 2008.  GSP closed 10 CMBS transactions, representing 15% of our total gross production.  Forward commitments also reappeared after a long absence from the market.  On two occasions, GSP arranged twelve-month forward commitments with large Life Insurance Companies.   Included in our 2011 totals are three large land loans and two ground-up construction loans.  Capital providers are once again considering hospitality requests, with GSP closing two limited service and two full service hotel loans in 2011. While GSP is known for arranging debt, mezzanine debt and equity, GSP has always had a significant consulting and expert witness practice.  In 2011, GSP was active in 49 consulting and expert assignments, serving some of the largest national law firms and lending institutions. Our robust pipeline promises a very active 2012 as more lenders return to the market.  We will keep you informed as market trends unfold over the coming months. Production Summary: 86 Permanent Loans 13 Bridge/Reposition Loans 10 Equity Placements 5 Construction Loans 1 Mezzanine Loan 1 Line of Credit Product Type: 54 Apartments 17 Retail/Shopping Centers 15 Offices 18 Industrial Properties 1 Medical Office 4 Hotels 2 Mixed Use Buildings 3 Land Loans 1 Mobile Home Park 1 Line of Credit Lender Type: 15 Agency Loans 58 Bank Loans 10 CMBS Transactions 13 Opportunity Funds 7 Life Insurance Companies 11 Private Placements 1 Bond Transaction 1 Real Estate Investment Trust (REIT)

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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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