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.
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
22nd 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.
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.
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.
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.
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.
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
Q10|WESTCAP
9960 Irvine Center Drive
Irvine, CA 92618
Office: (949) 387-9061 Cell: (949) 235-1540
EMAIL: sbridges@Q10westcap.com
www.westcapcorp.Q10Capital.com
CA RE Broker: 00465840
CA RE Broker: 00465840
