Income Property Financing

Tuesday, June 4, 2019

JUNE 5, 2019 INCOME PROPERTY FINANCING MARKET UPDATE

INCOME PROPERTY FINANCING MARKET UPDATE
June 5, 2019

MARKET UPDATE
    The yield curve is inverted, which typically precedes a recession by about 12 months. However, it is now very possible that the FED may lower the Fed Funds Rate, as they clearly over reached with their last increase. Will they, or won’t they? That is the question.
    Sales of previously owned homes, which account for about 90% of all home sales, trended lower after peaking in November 2017 through January 2018. In addition, manufacturing activity in the US, Eurozone, Japan, China and the UK slowed considerably from early 2018 through February of this year, and the pace of economic growth slowed substantially from October 2018 to February.
    Like late 2008 when the worldwide economic recession was nearing and US stock prices were in the process of bottoming, many experts have predicted that economic growth in major regions of the world will continue to slow and that the US economy will soon enter a recession. Not so fast, several economic indicators suggest the opposite.

The National Association of Realtors reported that existing home sales rose in February to the highest level since March 2018 and at the sharpest monthly rate since December 2015.

The US Department of Commerce reported sales of new homes rose in February for the second consecutive month and to the highest level since March 2018. With interest rates declining there is a good chance that home sales will continue to increase in the months ahead.

The Institute for Supply Management reported that US manufacturing activity accelerated in March, as it also did in Japan, China and the UK.

Construction spending rose in March for the third consecutive month,

Auto sales rose in March at the fastest monthly pace since September 2017, and

The University of Michigan survey of US households reported that the Consumer Confidence Index rose for the second consecutive month to the highest level since October 2018, suggesting that personal spending, which accounts for 68% of the GDP, will continue to increase.

    As most of these developments serve as leading economic indicators, it is possible that the slowdown could be coming to an end. A lot will depend on what the Fed does next. It is unfortunate that the FED did not recognize the slow down last year sooner and decided to raise the Fed Funds Rate in December.
    There are is a very interesting situation in process with the FED. The Federal Reserve Board consists of seven Fed governors, who are appointed by the President, approved by the Senate, and who set Fed policy and the Fed Funds Rate. There are presently only five Fed governors because Obama didn’t fill the two current vacancies, believing that Hillary would win and that she would have appointed progressives with very different views than Trumps. This is also critical as incumbent presidents who have controlled the Fed have almost always been reelected. Trump is in the process of filling those two vacant seats, already filled two other vacated seats, and is pushing the Fed to reduce the Fed Fund Rate to keep the economy moving, In light of all of this, I would expect that the Fed will likely reduce rates and we will see the economy continue to improve with long term rates remaining low as long as inflation continues to remain in check.

RECENT CLOSINGS
$35,000,000      118 Room Residence Inn by Marriott    Goleta, CA          Bank refi
$21,700,000      337,000SF Multi-tenant industrial         Texas                   Life Company
$13,500,000      129,187SF Office                                   Chandler, AZ      Life Company
$7,350,000      167,547SF Multi-Tenant Industrial        Fountain Valley Life Company
     $945,000      12 unit Multifamily                                 Las Vegas           Fannie Mae
    Q10|WESTCAP / We represent 15 life insurance companies for which we service over $2 billion of all property type income property loans. These relationships that date back 30+ years. We also work with the largest Fannie/Freddie/HUD underwriters in the country in addition to some of the best banks, bridge and CMBS sources, arranging permanent, construction, bridge and mezzanine financing nationwide.

    Hospitality Permanent Financing - I have recently seen hospitality quotes of 10-year fixed from a bank with flexible prepay at 1.70 over LIBOR with a hedge which resulted in a fixed rate at 4.12% with IO for 2 years, and a CMBS quote with 10 years IO. CMBS continues to be the source for maximum leverage underwriting senior debt to hi-8%'s to low 9% debt yield with spreads in the mid to low-to-mid 200's over the Swap.  I have also received quotes from several that added mezz to get down to 8.5% debt yields using a combined 1.10 DCR. We have also seen spreads as low as 150 for lower leverage loans. 2) Life companies are underwriting hospitality to 12% debt yield with rates in the low to mid 200's over the 10-year Treasury for the right properties and borrowers.
   Hospitality Construction Financing - Banks continue to be under pressure to dial back commercial construction lending, particularly on hospitality. That said, I still have several hospitality construction lenders quoting up to 65% LTC for a select service hotel. I also have a couple of banks that provide non-recourse hospitality construction loan up to 75% LTC with a combination 55%-60% senior and mezz for the balance. Finally, we have a great nationwide SBA source which can get to 85% LTC at Prime +2% up to $30 million.
   Multifamily Our life companies have been getting creative, offering forward commitments at attractive rates up to 75% LTV, requiring some recourse which are released once DRC hurdles are achieved.
     *** We have a very aggressive bank quoting in the high 3%'s for 5, 7 and 10/30, with LTV's to 80% and DCR's as low as 1.15.
    I jut closed a 12 unit property in Las Vegas with Fannie at full leverage 10/30, PAR and low processing cost.
    We work with a few of the largest Fannie/Freddie underwriters in the country for small and large programs. Multifamily also continues to be a favorite and our life companies have been coming up with some amazing pricing. We continue to see spreads inside of 100 basis points over the 10-year Treasury on large lower leverage loans.
   Agency Bridge Loans are available from $2 million at a 1.0 DCR for 2-3 years up to 90% of current value and 80% of stabilized for 1 point in and 1 out (waived if you take their perm) at L+400.
   Industrial financing continues to be a favorite as well of all lending sources. Life companies spreads ranged from sub-120-170 depending on leverage. Rates are slightly higher for office, retail, medical office and self-storage.
   Office & Medical Office - There is plenty of capital for office and medical office. I have a soft quote on a large single tenant office building in San Francisco for a 15/20 at 65% LTV with no TILC reserves with a 10-year lease.
   Unanchored and Strip Retail - Grocer anchored with solid sales figures are still a favorite. We continue to have life company sources for unanchored and strip retail.
   Big Box Retail space continues to be difficult due to the difficulty re-leasing these spaces as the retail industry closes and downsizes their retail stores to showrooms while shipping inventory direct to customers from big industrial logistics distribution facilities.

Self Storage Bridge Lenders - With pressure on the banks to be more conservative many have turned their focus to bridge lending in addition to our traditional bridge lenders and we are seeing several get more aggressive with less recourse and flexible prepayment provisions. On large transactions we are seeing pricing as low as LIBOR plus even sub-200, but again those are very large transactions. For deals under $25 million we are seeing pricing as low as L+300 for multifamily properties and goes up from there. 12-month lock out with no make whole provision and full term I/O and typically 1 point in and 1 point or less out. With the CMBS sources they will usually waive the exit fee if you roll into their permanent program. Some of the CMBS have their own internal mezz which can get them up to 80% LTV.

CROSS SECTION OF PAST CLOSINGS

WHY WESTCAP?    I have 40+ years experience arranging income property financing, ran 2 major construction lending operations, co-developed over 1 million SF of income property and have managed my own portfolio of retail, medical office and residential income properties since 1978, and have been president of 3 successful mortgage banking companies. I have arranged $600 million of hospitality construction and permanent financing the past 6 years, and I handle all income property types. My focus is solely on arranging the best possible loans for my clients.
    WESTCAP was founded in 1988 and serves as a correspondent to 15 life insurance companies for which we service over $2.0 billion. Most of these correspondent relationships date back over 25 years, including Sun Life of Canada for which we have been the exclusive correspondent in Southern California for over 30 years. We also represent non-correspondent life companies, multifamily agency sources, banks, construction lenders, bridge, mezzanine and equity, in order to meet all of our client's financing needs. We handle assignments ranging from $1,000,000 to $400,000,000 nationwide, and represent all sizes of borrowers including many of the largest developers in Southern California.
    WESTCAP is also a founding member of Q10, which is a network of 14 of the largest independent mortgage banking companies in the country with 22 offices throughout the United States, and a combined servicing portfolio in excess of $12 Billion. We arranged a combined $4.6 Billion last year, 46% life company, 18% CMBS and 36% agency. With a proprietary database sharing quotes, lender and equity intelligence we are constantly in a position to insure that we deliver the best sources at any given time for our clients.

Call for rates on all income property types including hospitality, multifamily, industrial, office, medical office, self-storage, retail, student and senior housing. We even have a couple of bank sources which offer no prepayment penalty and a few who offer non-recourse. With a few exceptions our permanent lending sources are PAR to us.

Steve Bridges
Executive Vice President
Q10|WESTCAP
9960 Irvine Center Drive
Irvine, CA 92618
Office: (949) 387-9061 Cell: (949) 235-1540
sbridges@Q10westcap.com
https://www.linkedin.com/in/stevebridges2/
www.westcapcorp.Q10Capital.com
CA RE Broker: 00465840

Thursday, March 28, 2019

INCOME PROPERTY FINANCING MARKET UPDATE APRIL 1, 2019

INCOME PROPERTY FINANCING MARKET UPDATE
April 1, 2019

The general response we have been getting from our lenders across the board is that 2019 is business as usual and it looks like we could have another two years of runway before we see a correction, which would appear to be consistent with the following: We are currently seeing an inverted yield curve, as short term rate (the 3-month, 1 and 2-year Treasury yields) slightly above the 5-year and 10-year Treasury yield. There has been concern due to the fact that a recession is typically preceded by an inverted yield curve. However, the narrative today is that yields are inverted because the FED, which controls the short end of the yield curve, over reached last year, raising the FED rate too fast. The long end of the curve reflects weakness in the economy, causing long term yields to fall and bond prices to rise, which has been the case to the tune of about 40 basis points the past month. In 2006 the yield curve began to invert sensing weakness in the housing market, which had peaked in 2005, began to roll in 2006, accelerated down in 2007 followed by financial crisis in 2008. While the real estate market was weakening, the economy continued to grow until late 2007 and the stock market remained strong through mid-2007, when the inversion of the yield curve stopped. Therefore, the 2006 cycle took much longer to predict stock market weakness and the recession. On average, it takes 21.3 months, according to LPL Research, for a bear market and recession to follow yield curve inversion. When the yield curve then goes flat it is usually a sign a recession or bear market are near. The real weakness in the economy in both the 2000 and 2007 ensuing recessions came when the yield curve not only inverted but steepened, because the FED cut short-term rates as the economy weakened, causing short-term rates to go down faster than long-term rates.

Presently the FED indicates comfort with the inflation rate standing at 2.1%, the economy and consumer confidence which remain strong, notwithstanding the hit the economy took as a result of the government shutdown and severe winter weather, which slowed residential and retail sales. In addition, investors paused to see how the November election was going to shake out, and paused further due to the results of the November election. The result was a slowing economy 4^th Quarter and early 2019, which saw the FED continued to raise and indicate more raises to follow. Now, the FED has softened their rhetoric on rate increases, and has now indicated they will not increase rates the rest of this year. Some feel we could even see a short tern rate cut if the economy sputters. For now, with the end of winter and lower interest rates one would expect residential sales and retail sales to improve, especially with the strong consumer confidence report just released. The wild card continues to be negotiations with China and the slowing global economy, including China. A new trade deal with China is apparently already baked into the current interest rates. So, it is incumbent upon Trump to finalize the new trade deal. If not, we would expect to see long-term rates rise quickly. Interestingly, our trade deficit declined dramatically last month due to a big reduction in Chinese imports.

RESIDENCE INN BY MARRIOTT / GOLTEA, CA

I AM PLEASED TO ANNOUNCE THE FUNDING OF MY 12TH LOAN FOR

RD OLSON DEVELOPMENT

Q10|WESTCAP / We represent 15 life insurance companies for which we service over $2 billion of all property type income property loans. These relationships that date back 30+ years. We also work with the largest Fannie/Freddie/HUD underwriters in the country in addition to some of the best banks, bridge and CMBS sources, arranging permanent, construction, bridge and mezzanine financing nationwide.
    Hospitality Permanent Financing - I have recently seen hospitality quotes of 10-year fixed from a bank with flexible prepay at 1.70 over LIBOR with a hedge which resulted in a fixed rate at 4.12% with IO for 2 years, and a CMBS quote with 10 years IO. CMBS continues to be the source for maximum leverage underwriting senior debt to hi-8%'s to low 9% debt yield with spreads in the mid to low-to-mid 200's over the Swap.  I have also received quotes from several that added mezz to get down to 8.5% debt yields using a combined 1.10 DCR. We have also seen spreads as low as 150 for lower leverage loans. 2) Life companies are underwriting hospitality to 12% debt yield with rates in the low to mid 200's over the 10-year Treasury for the right properties and borrowers.
   Hospitality Construction Financing - Banks continue to be under pressure to dial back commercial construction lending, particularly on hospitality. That said, I still have several hospitality construction lenders quoting up to 65% LTC for a select service hotel. I also have a couple of banks that provide non-recourse hospitality construction loan up to 75% LTC with a combination 55%-60% senior and mezz for the balance. Finally, we have a great nationwide SBA source which can get to 85% LTC at Prime +2% up to $30 million.
   Multifamily Our life companies have been getting creative, offering forward commitments at attractive rates up to 75% LTV, requiring some recourse which are released once DRC hurdles are achieved.
   I have a 12 unit property under application which should close next week with Fannie at full leverage 10/30, PAR and low processing cost. The rate will set 2 days prior to closing.
   We work with a few of the largest Fannie/Freddie underwriters in the country for small and large programs. Multifamily also continues to be a favorite and our life companies have been coming up with some amazing pricing. We continue to see spreads inside of 100 basis points over the 10-year Treasury on large lower leverage loans.
   Agency Bridge Loans are available from $2 million unstabilized at a 1.0 DCR for 2-3 years up to 90% of current value and 80% of stabilized for 1 point in and 1 out (waived if you take their perm) at L+400.
   Industrial financing continues to be a favorite as well of all lending sources. Life companies spreads ranged from sub-120-170 depending on leverage. Rates are slightly higher for office, retail, medical office and self-storage.
   Office & Medical Office - There is plenty of capital for office and medical office. I have a soft quote on a large single tenant office building in San Francisco for a 15/20 at 65% LTV with no TILC reserves with a 10-year lease.
   Unanchored and Strip Retail - Grocer anchored with solid sales figures are still a favorite. We continue to have life company sources for unanchored and strip retail.
   Big Box Retail space continues to be difficult due to the difficulty re-leasing these spaces as the retail industry closes and downsizes their retail stores to showrooms while shipping inventory direct to customers from big industrial logistics distribution facilities.

LIFE COMPANY RATES                                 5-Year               10-Year
Multifamily *                                                    3.69%-4.55%    3.69%-4.15%
Office, Industrial, Shopping Center and Self-Storage
                                                                           3.69%-4.50%    3.69%-4.40%

*We did see one very low-leverage multifamily quote at 95 bps over the 10-Year on a very large loan. Our life companies are PAR to us, and we have been beating the agencies on interest rates on slightly lower leverage. That situation will likely improve as it is likely that the agencies may be privatized under the new administration. *Amortizations are typically 30 years depending on the age and condition of the property with some interest only as a sweetener.

WHY WESTCAP?
I have 40+ years experience arranging income property financing, ran 2 major construction lending operations, co-developed over 1 million SF of income property and have managed my own portfolio of retail, medical office and residential income properties since 1978, and have been president of 3 successful mortgage banking companies. I have arranged $600 million of hospitality construction and permanent financing the past 6 years, and I handle all income property types. My focus is solely on arranging the best possible loans for my clients.

WESTCAP was founded in 1988 and serves as a correspondent to 15 life insurance companies for which we service over $2.0 billion. Most of these correspondent relationships date back over 25 years, including Sun Life of Canada for which we have been the exclusive correspondent in Southern California for over 30 years. We also represent non-correspondent life companies, multifamily agency sources, banks, construction lenders, bridge, mezzanine and equity, in order to meet all of our client's financing needs. We handle assignments ranging from $1,000,000 to $400,000,000 nationwide, and represent all sizes of borrowers including many of the largest developers in Southern California.

WESTCAP is also a founding member of Q10, which is a network of 14 of the largest independent mortgage banking companies in the country with 22 offices throughout the United States, and a combined servicing portfolio in excess of $12 Billion. We arranged a combined $4.6 Billion last year, 46% life company, 18% CMBS and 36% agency. With a proprietary database sharing quotes, lender and equity intelligence we are constantly in a position to insure that we deliver the best sources at any given time for our clients.

Steve Bridges

Executive Vice President

Q10|WESTCAP

9960 Irvine Center Drive

Irvine, CA 92618

Direct: 949-387-9061, Cell: 949-235-1540
sbridges@q10westcap.com

CA RE Broker's License #00465840

website: http://westcap.q10capital.com/

Thursday, February 14, 2019

ANNUAL INCOME PROPERTY FINANCE CONFERENCE SUMMARY FEBRUARY 2019

ANNUAL INCOME PROPERTY FINANCE CONFERENCE SUMMARY

FEBRUARY 2019

I just returned from the annual Commercial Real Estate Finance Conference in San Diego, where we met with our nationwide lenders from banks, bridge, CMBS and of our life companies. Without exception, the consensus is business as usual with lending goals of equal to last year.

Fears of an economic slowdown late last year have been eased by stronger-than-expected corporate earnings, a more accommodative Federal Reserve and signals of strength from the labor market.

Data from the Labor Department showed U.S. nonfarm payroll numbers rose a seasonally adjusted 304,000 in January, the unemployment rate rose to 4.0% and average hourly wages for private-sector workers grew 3.2% from a year earlier. Economists surveyed by The Wall Street Journal had forecast that employers would add 170,000 jobs during the month and the unemployment rate was steady at 3.9%.

The strong data follows Federal Reserve Chairman Jerome Powell’s comments that the case for raising rates “has weakened somewhat,” which eased concerns about monetary policy. The juxtaposition of Mr. Powell’s remarks and the stronger-than-expected jobs report has some analysts speculating the Fed may have been too quick to cool its pace of interest-rate increases.

“The single most important thing now is the negotiations with China,” said Brian Rose, senior economist Americas at UBS Global Wealth Management. “This is a big risk for the economy and stock market.”

“If we have a Cold War between China and the U.S. like we had with Russia and U.S., then we have a problem,” said Didier Rabattu, head of equities at Lombard Odier Investment Managers, who is optimistic that tensions will calm in the coming weeks. The consensus as of my writing is that Trump is going to make a trade deal with Xi in the short-term.

Let’s not forget to keep an eye on the price of oil. I have been saying to watch the price of oil for several years, as interest rate seem to move in sync with oil. U.S. crude oil added 1% to $54.33 a barrel, and as of this writing, the 10-year Treasury is down to 2.65%. However, several of the best oil prognosticators is calling for oil to rise to $70-$75 by June as Russia and OPEC maneuver to push the price of oil higher.

PRODUCT TYPES

    Hospitality Permanent Financing - I am in closing on a $35,000,000 Residence Inn. 1) We had a 5 year bank quote with flexible prepay at 1.70 over swaps with a hedge which resulted in a fixed rate at 4.44% with IO for 2 years. 2) We also had a CMBS quote with 10 years IO. CMBS continues to be the source for maximum leverage underwriting senior debt to hi-8%'s to low 9% debt yield with spreads in the mid to low-to-mid 200's over the Swap.  I have also received quotes recently from several that added mezz to get down to 8.5% debt yields using a combined 1.10 DCR. We have also seen spreads as low as 150 for lower leverage loans. 2) Life companies are underwriting to 12% debt yield with rates in the low to mid 200's over the 10-year Treasury for the right properties and borrowers.
   Hospitality Construction Financing - Banks continue to be under pressure to dial back commercial construction lending, particularly on hospitality. That said, I still have several hospitality construction loan at 65% LTC for a select service hotel. I also have a couple of banks that provide non-recourse hospitality construction loan up to 75% LTC with a combination 50-55% senior and mezz for the balance. Finally, we have a great nationwide SBA source which can get to 85% LTC at Prime +2% up to $30 million.
   Multifamily We work with the largest private Fannie/Freddie lender in the country which has quotes great rates through the small and large programs. I just put a $1 million loan under application with Freddie for a 12 unit 1955 multifamily at 4.86% 10/30, PAR and low processing cost.
    Multifamily also continues to be a favorite and our life companies have been coming up with some amazing pricing. We continue to see spreads inside of 100 basis points over the 10-year Treasury on large lower leverage loans.
   Agency Bridge Loans are available from $2 million unstabilized at a 1.0 DCR for 2-3 years up to 90% of current value and 80% of stabilized for 1 point in and 1 out (waived if you take their perm) at L+400.
   Industrial financing continues to be the favorite of all lending sources. Life companies spreads ranged from sub-120-170 depending on leverage. Rates are slightly higher for office, retail, medical office and self-storage.
   Office & Medical Office - There is plenty of capital for office and medical office.
   Unanchored and Strip Retail - We continue to have life company sources for unanchored and strip retail.
   Big Box Retail space continues to be difficult due to the difficulty re-leasing these spaces as the retail industry closes and downsizes their retail stores to showrooms while shipping inventory direct to customers from big industrial logistics distribution facilities.

LIFE COMPANY RATES                                 5-Year               10-Year
Multifamily *                                                    4.27%-4.97%    4.21-4.91%
Office, Industrial, Shopping Center and Self-Storage
                                                                           4.19%-4.89%   4.52%-5.27%
*Our life companies are PAR to us, and we have been continuing to beat the agencies on interest rates. Amortization run up to 30 years depending on the age and condition of the property.

SAMPLE CLOSINGS

WHY WESTCAP?
     I have 40+ years experience arranging income property financing, ran two major construction lending operations, co-developed over 1 million SF of income property and have managed my own portfolio of retail, medical office and residential income properties since 1989, and have been president of 3 successful mortgage banking companies. I have arranged $600 million of hospitality construction and permanent financing the past 6 years, I handle all income property types. My focus is solely on arranging the best possible loans for my clients.
    WESTCAP was founded in 1988 and serves as a correspondent to 15 life insurance companies for which we service over $2.0 billion. Most of these correspondent relationships date back over 25 years, including Sun Life of Canada for which we have been the exclusive correspondent in Southern California for almost 30 years. We also represent non-correspondent life companies, multifamily agency sources, banks, construction lenders, bridge, mezzanine and equity, in order to meet all of our client's financing needs. We handle assignments ranging from $1,000,000 to $400,000,000 nationwide, and represent all sizes of borrowers including some of the largest developers in Southern California.
    WESTCAP is also a founding member of Q10 Capital, which is a network of 14 of the largest independent mortgage banking companies in the country with 22 offices throughout the United States, and a combined servicing portfolio in excess of $12 Billion. With a proprietary database sharing quotes, lender and equity intelligence we are constantly in a position to insure that we deliver the best sources at any given time for our clients.

Call for rates on all income property types including hospitality, multifamily, industrial, retail, office, self-storage, student and senior housing. We even have a couple of bank sources which offer no prepayment penalty and a few who offer non-recourse. With a few exceptions our permanent lending sources are PAR to us.

Steve Bridges

Executive Vice President
Q10|WESTCAP
9960 Irvine Center Drive
Irvine, CA 92618
Office: (949) 387-9061 Cell: (949) 235-1540

sbridges@Q10westcap.com

https://www.linkedin.com/in/stevebridges2/

www.westcapcorp.Q10Capital.com
CA RE Broker: 00465840

Monday, June 11, 2018

JUNE 11, 2018 MARKET UPDATE

JUNE 11, 2018

I am pleased to announce the funding of a $16,250,000 bank construction loan for
a 140-Room Hampton Inn in downtown Riverside, CA.

MARKET UPDATE

The 10-Year Treasury has moved up 46 basis points since the first of the year to 2.96% and the 10-Year Swap has moved up to 3.02%, while the Prime rate has moved up from 4.25% to 4.75%. A recent increase in bond yields, along with positive economic data and rising inflation, has boosted expectations that the Federal Reserve will increase interest rates and tighten monetary policy. The Fed raised rates in March and is expected to raise rates twice more, with some investors expecting a third hike. Expectations of higher interest rates tend to boost the dollar by making the currency more attractive to yield-seeking investors, while uncertainty over US-China trade talks has the stock market in flux. Once again, we are seeing the Treasury Yield has drop the past week along with the price of oil, while the Dollar is at a 10-month high against the Euro amid the deepening political crisis in Italy.

On May 22^nd Congress passed S2155, “Economic Growth Regulatory Relief and Consumer Protection Act”, aka “the Reform Bill.” The intent of this legislation was to clarify specific provisions pertaining to HVCRE regulations, as defined by Basel III and the FDIC. President Trump has indicated he will sign the bill. The most salient changes are:
1.   Developers can, once again, receive credit for the appraised value of contributed land versus the actual purchase price.
2.   This new legislation removes restrictions on distributing excess capital above the requisite minimum. Now, only the 15% minimum required capital need remain in the project.
3.   If the cash flow generated by the real property is sufficient to support the debt service and expenses of the real property, in accordance with the bank’s applicable loan underwriting criteria for permanent financings, then the loan is no longer required to be classified as HVCRE. Under the old rules, the standing loan would be classified HVCRE until the property is refinanced and the current loan is retired or converted to a permanent status. With regard to construction loans, once substantial completion has occurred and the property’s cash flow is sufficient to cover debt and expenses, then the financing institution has the option of reclassifying the obligation as non-HVCRE.
4.   In conclusion, there are no hard and fast rules, and, as always, lending institutions have their own criteria and policies. The recent legislative changes provide additional latitude for increased discretion on the part of lenders.

Industrial financing continues to be the favorite of our life companies with full leverage spreads in the 130-150 spread range. In addition to 10-year fixed rate financing, we are seeing several of our life companies offering terms from as short as 3 years all the way to 30 years fully amortizing. With the yield curve extremely flat the difference in rate between 7 and 10 year fixed rates vs. a 15 or 20 year fixed rate is not much if you are interested in a fully amortizing loan. Rates are slightly higher for office, retail, medical office and self-storage.
Big Box Retail space continues to be difficult due to the difficulty re-leasing these spaces as the retail industry closes and downsizes their retail stores to showrooms while shipping inventory direct to customers from big industrial logistics distribution facilities. Thus the preferred treatment of industrial property financing.

Multifamily financing also continues to be a favorite and our life companies have been coming up with some amazing pricing. We have actually seen spreads inside of 100 basis points over the 10-year Treasury on large lower leverage loans. The Agencies (Fannie and Freddie) can get up to 80% LTV are pricing full leverage at 1.25 DCR. Pricing is in the range of 219-229 over the 10-year Treasury on a PAR basis. The advantage of course with Fannie and Freddie is that they allow for multiple future loan increases at their then first TD rates. We have some amazing pricing for Affordable (Low Income) Multifamily projects.
Agency Bridge Loans are available from $2 million unstabalized at a 1.0 DCR for 2-3 years up to 90% of current value and 80% of stabilized for 1 point in and 1 out (waived if you take their perm) at L+400.Hospitality permanent financing continues to be priced a higher with CMBS continuing to be the source for maximum leverage. Some of our CMBS sources can get down to debt yields in the low to 9% with full leverage spreads in the mid-200’s for 10-year fixed rates, while the life companies look for a minimum of 12% debt yields with spreads in the low 200’s. We also have equity sources which are interested in select and full service with very experienced developers.
Banks continue to be under pressure from the regulators to dial back commercial construction lending, particularly in the case with hospitality construction lending. That said, I just arranged a $16,250,000 hospitality construction loan at 65% LTC for a select service hotel. Most banks are capping their hospitality construction loans at 55%-60% LTC, with several allowing construction mezz up to 75% LTC behind their senior loans.

Bridge Lenders - With pressure on the banks to be more conservative many have turned their focus to bridge lending in addition to our traditional bridge lenders and we are seeing several get more aggressive with less recourse and flexible prepayment provisions. On large transactions we are seeing pricing as low as LIBOR plus even sub-200, but again those are very large transactions. For deals under $25 million we are seeing pricing as low as L+350 for multifamily properties and goes up from there. 12-month lock out with no make whole provision and full term I/O and typically 1 point in and 1 point or less out. With the CMBS sources they will usually waive the exit fee if you roll into their permanent program. Some of the CMBS have their own internal mezz which can get them up to 80% LTV.

LIFE COMPANY RATES                                 5-Year               10-Year
Multifamily *                                                    4.54%-5.10%    4.36%-5.06%
Office, Industrial, Shopping Center and Self-Storage
                                                                           4.50%-5.20%   4.46%-5.216

*Our life companies are PAR to us, and we have been beating the agencies on interest rates. That situation will likely improve as the likelihood if the agencies are privatized under the new administration.
*Amortizations run up to 30 years depending on the age and condition of the property.

SAMPLING OF PAST CLOSINGS

WHY WESTCAP?WESTCAP is a founding member of Q10 Capital, which was formed in 1988, and is a network of 14 of the largest independent mortgage banking companies in the country with 22 offices throughout the United States, and a combined servicing portfolio in excess of $12 Billion. With a proprietary database sharing quotes, lender and equity intelligence we are constantly in a position to insure that we deliver the best sources at any given time for our clients.

WESTCAP serves as a correspondent to 15 life insurance companies for, which we service over $1.9 billion, and other sources of capital in order to meet all of our client's financing needs. Most of these correspondent relationships date back over 25 years, including Sun Life of Canada for which we have been the exclusive correspondent in Southern California for almost 30 years. We are handling assignments ranging from $1,000,000 to $400,000,000, and represent all sizes of borrowers including some of the largest developers in Southern California.

Call for rates on all income property types including hospitality, self-storage, student and senior housing. In addition to our life company sources, we have a long list of relationships with active CMBS, construction, bridge and mezz lenders and equity for all product types. We even have a couple of bank sources which offer no prepayment penalty and a few who offer non-recourse. With a few exceptions our permanent lending sources are PAR to us.

Steve BridgesExecutive Vice President
Q10|WESTCAP
9960 Irvine Center Drive
Irvine, CA 92618
Office: (949) 387-9061 Cell: (949) 235-1540

EMAIL: sbridges@Q10westcap.com

https://www.linkedin.com/in/stevebridges2/

www.westcapcorp.Q10Capital.com
CA RE Broker: 00465840

Monday, April 24, 2017

1ST QUARTER INCOME PROPERTY FINANCING UPDATE

1st QUARTER MARKET UPDATE
April 24, 2017

After a record year 2016, 2017 is off to a fast start and just seems to be getting busier. Our life companies are flush with funds and pricing aggressively, as are our CMBS, bridge and mezz sources. This is certainly great timing for borrowers anxious to lock rates in anticipating of additional rate hicks to come this year. Banks have come under pressure from the regulators to dial back commercial real estate lending, in particular construction lending and hospitality construction lending even more so. Frankly, I find this surprising considering vacancy rates are low for most product types and occupancy rates and RevPars for hotels are at record levels. That said, we have multiple banks which are continuing to lend on hospitality, albeit more conservatively.
     We are seeing some amazing low spreads having lock rate last week with two of our life companies on a mobile home park at 3.69% (1.40 spread over the 10-year Treasury) with interest only payments the first five years, and 3.65% on a multi-tenant business park 10-years fixed and two years interest only offered on that loan. Expect the life companies to start becoming more selective this Summer as they achieve allocations early this year based on the high level of activity we are seeing.
     I also have a nice value-add multifamily project under application for $23,150,000 at 77% of stabilized value and at Libor plus 5.25%.
     Hospitality permanent financing is priced a bit higher, but readily available with our CMBS sources up to 70% LTV at spreads in the range of 225-260, and up to 80% LTV through a few sources with self-funded mezz for approximately 50 basis points more in spread. I've closed two hospitality loans this year, one construction loan and one refinancing.

LIFE COMPANY RATES                                 5-Year               10-Year
Multifamily *                                                    3.37%-4.07%    3.60%-4.35%
Office, Industrial, Shopping Center and Self-Storage
                                                                           3.47%-4.17%    3.65%-4.45%

*Our life companies are PAR to us, and we have been beating the agencies on interest rates. That situation will likely improve as the likelihood if the agencies are privatized under the new administration.
*Amortizations run up to 30 years depending on the age and condition of the property.

RECENT CLOSINGS

        $24,000,000 124-ROOM HOTEL CONSTRUCTION LOAN
        HEALDSBURG, CA / 66% LTC bank financing at Libor+400

$15,700,000 109-ROOM BEST WESTERN PLUS RESORT HOTEL
SEASIDE, OREGON / CMBS Refinance

$27,000,000 168,263 SF RETAIL CENTER
WHITTIER, CA / Life Company Refinance

$10,200,000 55,456 SF OFFICE/RETAIL
DANA POINT, CA / Life Company Refinance

WHY WESTCAP?
WESTCAP is a founding member of Q10 Capital, which was formed in 1988, and is a network of 14 of the largest independent mortgage banking companies in the country with 22 offices throughout the United States, and a combined servicing portfolio in excess of $12 Billion. With a proprietary database sharing quotes, lender and equity intelligence we are constantly in a position to insure that we deliver the best sources at any given time for our clients.

WESTCAP serves as a correspondent to 15 life insurance companies for, which we service over $1.7 billion, and other sources of capital in order to meet all of our client's financing needs. Most of these correspondent relationships date back over 25 years, including Sun Life of Canada for which we have been the exclusive correspondent in Southern California for almost 30 years. We are handling assignments ranging from $1,000,000 to $400,000,000, and represent all sizes of borrowers including some of the largest developers in Southern California.
Call for rates on all income property types including hospitality, self-storage, student and senior housing. In addition to our life company sources, we have a long list of relationships with active CMBS, construction, bridge and mezz lenders and equity for all product types. We even have a couple of bank sources which offer no prepayment penalty and a few who offer non-recourse. With a few exceptions our permanent lending sources are PAR to us.

Steve Bridges
Executive Vice President
Q10|WESTCAP
9960 Irvine Center Drive
Irvine, CA 92618
Office: (949) 387-9061 Cell: (949) 235-1540
sbridges@Q10westcap.com
www.westcapcorp.Q10Capital.com
CA RE Broker: 00465840