| Transactions of the Week | 
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| | Transaction Description: | | $12,500,000, Cash Out Refinance on an Un-Flagged Boutique Hotel, West Hollywood, California. GSP arranged the refinance on a recently renovated boutique hotel in West Hollywood, California. The 95 room hotel recently completed a renovation that included room upgrades, common areas and exercise facility improvements. The Owner retained a new operator for the ground floor restaurant which has become one of Los Angeles' top eateries. Because of the recent renovation, occupancy and revenue have trended up significantly since the start of 2012. | |
Challenge: The Borrower re-financed the hotel in 2009 with a credit company and then embarked on a complete $2,000,000+ renovation of the hotel using personal cash. While the loan was secured during the downturn, the cost was over 200 basis points more than market interest rates. The Borrower required a more competitive interest rate and a reimbursement of his out-of-pocket renovation costs.
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Solution: GSP worked with the Borrower and Appraiser to demonstrate that the recent up-tick of revenue was supportable over the long-term given the recent renovations. GSP surveyed the local market, studied the competitive set, and identified a lender comfortable with the return of equity. The property appraised so strongly that the Borrower was able to increase his cash-out by an additional $1,000,000 over the renovation funds invested by the Borrower. The Lender made no adjustment to the interest rate given the increased loan request.
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| | Transaction Description: | | 95% Loan-to-Cost/Cash Out Refinance of 24 Unit Baldwin Hills Apartments Our Client purchased the subject property last year and was seeking a return of their equity for the acquisition of additional units. George Smith Partners successfully placed the $2,100,000 non-recourse loan to 95% of the Borrowers' total cost basis for the 24 Units in Baldwin Hills, California. The loan is fixed at 4.0% for 10 years. At the time of purchase, vacancy, collection delinquency, and deferred maintenance were extremely high. The Borrower invested an additional $200,000 into capital improvements, and transformed property management practices. Due to the Borrowers' successful renovation, George Smith Partners was able to obtain new financing that totaled 95% of purchase and all upgrade costs prior to the one year anniversary. | |
Challenge: A majority of lenders maintain strict seasoning requirements for cash out for transactions for properties that have undergone recent repositioning. Assets purchased within the prior 24 months are especially scrutinized regardless of any equity returns to the Borrower. Our Client was in escrow on an unrelated acquisition and required maximum proceeds from this refinance, yet was rate sensitive for long term non-recourse debt. Most lenders are constrained at 75% of cost. The property location and limited amount of stabilized collections added to our challenges.
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Solution: GSP identified a lender willing to offer a capitalization exception based on the strength of the Borrower and current status of the subject property in order to provide the Borrowers with cash-out to 95% of their total costs. GSP demonstrated that the Borrower purchased the asset at a below market price and therefore the new stabilized value should not be based on the original purchase price. The Lender offered a market rate, 10-year fixed rate non-recourse loan at 4.00%.
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| | | | Small Loan CMBS Product is Back! GSP is working with a West Coast capital provider actively funding non-recourse fixed rate CMBS loans down to $2,000,000 with no spread add-on. Until recently, Wall Street was rejecting all loan requests less than $5,000,000. Extensive closing and legal fees made CMBS execution less than palatable for Borrowers. This Wall Street underwriter will cap all lender related closing costs including lender legal fees at $20,000. This nation-wide lender will fund in MSAs as small as 50,000 to a 9%-10% debt yield and 70% LTV. Products include core asset types + student housing and mobile home parks. Hospitality and single-tenant requests are not being considered at this time. | | |
| | Hot Money | Regional California Bank Funding Reposition Bridge GSP identified a regional bank funding broken/fractured condos and the repositioning of other value-added opportunities. This Institutional lender will fund anywhere within California on loan requests from $1,000,000 to $20,000,000. LTV is constrained to 65% of value on multifamily and commercial assets. Rates start between Prime + 1.00%-1.50%; floored at 5.0%. Non-recourse will be considered on requests below 50% LTV and a 1.25 DCR at close. A 5-Year mini-perm may be available upon asset stabilization. | |
| | 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 News.... | Senior Vice President Steven Orchard was recently quoted in the inaugural issue of "Seniors Housing Business Magazine" on the migration of investors and institutional capital to the Senior Housing segment. Until the magazine is posted on-line, please e-mail Mr. Orchard to receive a complimentary copy of his comments and additional thoughts on available Senior Housing financing via pdf. | |
| | Pascale's Perspective | US Treasuries Treasuries are staying in a tight range, with the 10 year yield hovering around 1.65%. Investors are seeking the "safe haven" due to uncertainty in the markets. This week's "list of concerns" include: (1) Spain: Downgraded to one level above junk by S&P, as investors wait for the seemingly inevitable formal bailout request for Spain to access the European rescue fund. Spain seems to be avoiding the request, instead of accepting the austerity terms that will be attached to the rescue funds; (2) IMF: the International Monetary Fund cut its worldwide growth forecast and warned of another recession; (3) Uncertainty over quarterly corporate earnings announcements set to begin this week……Spotlight on "Treasury Flash Crash?": Computer driven "speed traders" are increasingly trading US Treasuries. In May 2010, the Dow crashed 1,000 points in minutes due to speed trading on stocks. The huge size of the Treasury market has attracted speed traders in the past few years. High frequency trading now accounts for 40-50% of Treasury volume according to Tabb Group (research firm). This is up from "negligible amounts" just 5 years ago. What might happen? Experts feel that a "flash crash" in Treasury prices could send yields soaring from 1.6% to 4.0% or even 5% in minutes…..Hopefully not during a rate lock for a GSP borrower! ....stay tuned…. David R. Pascale, Jr. | |
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