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Netleased Financing after the Near Zero Fed Rate cut!

December 17, 2008

Neil C. Efron, CCIM

10 year treasury 12-17-08: 2.12%; 1 month ago 3.38%, 6 months ago, 4.15%; 1 year ago 4.12%

5 year treasury 12-17-08: 1.21%; 1 month ago 2.41%, 6 months ago, 3.57%; 1 year ago 3.49%

Wall Street: At this point it is likely that the Wall Street conduits will be gone for at least the next 12 to 24 months if they ever return at all. Well Fargo continues to be the only lender still willing to do conduit oriented deals with non-recourse. The underwriting criteria have become more stringent and their upper limit of loan to value is only 65% versus 75% 2 months ago. They are still doing 2, 3 or 5 year fixed rate deals. Today the rates range from the mid 5% range for the 2 year deal, the upper 5% range for the 3 year deal and the upper 6% range for the 5 year deal. I purposely do not list the spreads. It is best to just focus on the overall interest rate. The debt coverage requirement is 1.30 times and 30 year amortization is relatively standard. Wells also now offers a program that will fix the interest rate at loan application with a 1% deposit with no hedge risk whatsoever. The premium on the rate is about 40 basis points though. The other Wall Street lenders like NATIXIS and CIBC are continuing to focus on larger (in excess of $15MM) short term floating transactions. For 65% loans the spread over LIBOR ranges from 500 to 600 (mid to higher 8% range), For 75% the spread has ballooned to over 800 (mid 9% or higher).

Life companies are effectively out of the market through the end of 2008. More life companies are reporting that there may be cash flow issues for investment in 2009. With the dramatic decrease in the value of their stock portfolio the percentage of real estate has grown beyond the targeted allocation and therefore they will have less money for real estate investment. They may not even have enough money for renewals in their own portfolio.

Credit Tenant Lease Transactions got even worse since the last newsletter but have started to recover somewhat. The levels though are not nearly what they had been before. Walgreen’s deals can get done today at an overall rate of 7.9% for a fully amortizing 25 year loan (it is a hefty spread and no where near the spreads of 250 from 3 months ago). GSA deals are getting done in the mid 7% range for long term lease deals. The good news is that the underwriting has not changed. There is no loan to value constraint and the debt coverage can be as low as 1.0 times.  GE Capital continues to be on the sideline.

FANNIE MAE AND FREDDIE MAC: Fannie Mae continues to be an active lender for multi-family product. Florida has been put on the Fannie pre-screen list which likely means maximum loan to value of 65% to 70% and debt coverage of 1.35 times. The overall spreads have increased in the past 60 days but the decrease in the US Treasuries mean that the 10 year rates are in the upper 5% to low 6% range. Freddie Mac is now only looking at deals $10MM and over.

Neil Efron, CCIM is the Senior Vice President at Atlantic Bank in Fort Lauderdale Florida and can be reached by email  or phone 954-940-5313.


Home Depot Enters $41 Million Sale Leaseback of Distribution Center in Virginia

November 21, 2008

The Winchester Star – January 12, 2008

The Home Depot Distribution Center at Eastgate Commerce Center has been sold to a private equity firm as part of 10-year lease-back agreement that will keep the massive warehouse operating in Frederick County for at least another decade.

Equity Industrial Winchester LLC and Equity Industrial Winchester LP, both based in Needham, Mass., bought the 842,000-square-foot warehousing facility for $41 million, according to Frederick County’s electronic property records. Read More >>