2017 NEW YEARS INCOME PROPERTY FINANCING UPDATE

WISHING YOU A HAPPY, HEALTHY AND
SUCCESSFUL NEW YEAR

January 10, 2017

As we enter the new year the mood with our lending community is upbeat, with all of our life companies are looking to put out at least as much as they did last year and more in most cases. Our CMBS sources are active and aggressively looking for business, I am still seeing plenty of construction financing available, albeit a bit more conservative, as well as plenty of bridge funds for value-add plays, and debt funds for the more challenging placements.

There is an overriding optimism that if the new Administration and Congress are able to deliver the business friendly agenda they have laid out we could see the GDP rise to 4-5%, which would be more typical of a post-recession recovery vs. the sub-2% we have experienced over the past 8 years, which is half the level of the average recovery since the end of WWII. The concern are many: 1) The real unemployment rate still stands at 9.5%. 2) Its going to take some time to get this agenda into place and for the impact of this agenda to be felt. Consider that after Regan came into office in 1980 and his economic reforms weren’t implemented until January 1983 following a severe recession in 1982. Most likely, new pro-growth legislation won’t be implemented until 2018 and then it will take time to work. 3) Our Fed may have raised the Fed Funds Rate, as there are still Central Banks around the world clinging to negative Central Bank rates attempting to kick start their economies. Our Fed is trying to create some breathing room should our recovery stall, but the ball is really in the hands of the new Administration and Congress come January 20 to deliver, and hopefully sooner than later.

If we assume that they can implement their agenda sooner than Regan was able to accomplish and the global bogeymen don’t derail our recovery, we could be in for a very encouraging recovery. Assuming the best case scenario we will see interest rates trend higher on long-term inflation expectations factoring in a spike in GDP down the road, which has already begun with the 10-year Treasury yield rising from its low last June of 1.35% to 2.57% two weeks ago. It presently stands at 2.44%. I believe we may see the 10-year Treasury yield remain in it's current range while the markets evaluate the amount of time it may take for the new agenda to get traction, while also waiting to see if the new agenda can in fact be accomplished. If the signs are encouraging the 10-year Treasury Yield with start climbing at which point it may move quicker than anyone expects. If I knew how much and how soon, I wouldn’t be writing this. I would be on my boat fishing Blue Marlin in Costa Rica.

ACTIVITY AND RATES2016 was a banner year for me personally closing over $220 million, which included hotel construction and permanent loans, office building refinances, as well as shopping centers, multifamily and industrial refis, and 2017 is starting off with a bang with two closings in process, one for a $24 million hotel construction loan in Sonoma County and a $16 million hotel refinance in Oregon. We are looking at interest rates for construction loans of 4.77% and a CMBS spread for hospitality of 264 over swap (currently at 2.32%) for this refinance. I am also working on a large data center construction-to-perm with one of our life companies with a long-term lease investment grade tenant, and a large student housing refinance in Canada. We have sources for all sizes and types of transaction.

LIFE COMPANY RATES                             5-Year               10-Year
Multifamily *                                                    3.53%-4.23%     3.85%-4.55%
Office, Industrial, Shopping Center and Self-Storage
                                                                           3.78%-4.48%    4.10%-4.80%

*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 is that the agencies will be privatized under the new administration.
*Amortizations run up to 30 years depending on the age and condition of the property.

HOSPITALITY FINANCINGAlthough banks and CMBS have tightened their allocations and underwriting on hospitality, I still have sources for the right projects. In addition to banks I have some debt funds which are very active, albeit at higher rates. Those debt sources are non-recourse and are coming up with LTC as high as 65% and I have a mezz source which can get us to 70-75% LTV and will also provide mezz for construction to 70-75% LTC. The mezz sources are available for all property types. For large major flagged hotel developments  I have two very interesting sources, one of which will provide construction debt and equity. This require very strong hospitality track records and developer financials.

MULTIFAMILY, INDUSTRIAL, RETAIL, OFFICE  AND OTHER Multifamily is always a favorite with life companies and lately they have been beating out the agencies on pricing.

Industrial is a preferred product type with all of our life companies in many markets around the country, and we have sources for large single tenant as well as multi-tenant industrial and retail.

Our larger life prefer grocer anchored retail centers and we have smaller life companies which love strip retail as well.

We have plenty of life companies for office and self storage product, but find it priced slightly higher than multifamily, industrial and retail. 

Q10 Westcap secured an $23.5 mm fixed rate permanent loan for this 300,000 SF class A distribution facility.  The borrower wanted to lock rate the middle of this year but the building wasn't completed and the tenant obviously was not in occupancy and paying rent.  The lender agreed to lock rate with a funding later in the year when the building was complete and the tenant had taken occupancy.

Q10 Westcap secured an $11.0 mm fixed rate permanent loan for this 225,000 SF class A distribution facility through Sun Life of Canada who Q10 Westcap represents exclusively in Southern California.  Challenges included a highly competitive interest rate market this summer and a single tenant with a remaining lease term of less than 5 years.

Q10 Westcap secured a $3.0 mm fixed rate permanent loan for this 46,600 SF office, manufacturing and warehouse facility through a Life Company Correspondent.  Our challenge was to meet the borrower's expectations as to the loan amount the property would support while addressing the lenders concerns of over lending on a facility that was more highly improved than the market with 30% office, specialized improvements and a higher than market rental rate.    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 PresidentQ10|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