Deal Spotlight: $9,000,000 Independent Living Facility in Delray Beach

BankAtlantic recently provided a redevelopment loan for this 196-unit independent living facility. This Class A facility with numerous amenities contained a total of 175,000 square foot and was built in 1988-89. The property was in good condition but the borrower wanted to complete some cosmetic improvements. The borrower had a plan in place to perform $2 million in renovations out of pocket. BankAtlantic refinanced the existing debt for a term of 5 years fixed which allowed for an interest only period for 12 months while the renovations were being completed. After the initial interest only period the loan was put on a 25 year amortization.

Permanent Loan Volatility Continues

There does not seem to be any end to the continued volatility with the permanent lending markets. Most of the Wall Street conduits are still basically shut down for any securitized business (except for Wells Fargo). The life insurance companies continue to cherry pick only the top deals in terms of leverage and quality. The interest rates from life companies vary depending on which one you are talking to.
Some life companies still have attractive interest rates in the low 6% range for 10 year fixed rate deals while others are in the higher 6% range or even over 7%. There are some life companies out of the market completely.
The options for a borrower looking for “normal” leverage (75%) AND non-recourse is severely limited. The life companies will be able to get to a 75% loan to value only for the highest quality and highest credit deals and only with the strongest and most experienced borrowers. For loans under $3MM, a 75% LTV will almost certainly come from a bank and have at least some level of personal recourse.
There have been 3 smaller issues of securitized pools so far this year totaling $5 billion. Each was relatively small and the B pieces were pre-sold to investors. So there is a market that is operating albeit at a much slower pace. In the most recent pool, the highest rated bonds were priced at a spread of over 300 basis points. As a comparison, at this point last year they were priced at a spread of only 30 basis points.

MARKET RATE WATCH

10 year treasury 4-16-08: 3.67%; 6 months ago, 4.57%; 1 year ago 4.69%

5 year treasury 4-16-08: 2.80%; 6 months ago, 4.23%; 1 year ago 4.60%

Wall Street Conduits are essentially out of business except for Well Fargo. While many conduits are trying to keep their loan production staff busy, Wells Fargo decided earlier this year to use their balance sheet for non-recourse permanent loans with 10, 5, and 3 year terms. They are limited to 75% loan to value. Their best rates today are about 6.70% for 10 years; 6% for 5 years; and about 5.5% for 3 year deals. They are not interested in hotels and their minimum deal size is $3MM.

Life Companies rates are ranging in the mid 5% range for shorter term loans to low 6% range for 10 year deals. Everything depends on the quality of the deal, and how conservative the underwriting is. There are a few life companies that are out of the market or have effectively put themselves out of the market by charging interest rates in the mid 7% range. Deal size is also a limitation. Many Life Companies want deals over $3MM and others higher than that. We do have lenders that will go as low as $1MM.

Credit Tenant Lease Transactions have stabilized somewhat in the past 30 days. A Walgreen’s deal today is in the lower 6% range (a spread of 250 over the interpolated 16 year rate) for a 25 year fully amortizing deal. Non-investment grade tenant deals can be done with Life Companies for lower leverage transactions. 75% to 85% loans are achievable with non-investment grade tenants but the rate will be in the mid to upper 7% range today. We have access to current tenant credit listings. Please feel free to contact us for this information.

Multi-Family - The agencies are the best choice for multi-family permanent loans. I recently quoted a 10 year deal where the fixed rate was just under 6% (a 250 bp spread). 80% loan to value is still available and 1.20 times debt coverage ratio. 5 year deals are also available at a coupon rate in the 5.5% range. Fannie Mae is scrutinizing cap rates that appraisers use and will likely not consider anything lower than 6.5% in today’s market. Don’t forget that they offer supplemental fundings which eliminates the prepayment risk. For deals under $3MM, the 3 MAX program offers fixed closing costs ($7,500) and limited documentation.