Commercial Mortgage Financing Advisors:

November 2, 2011

RE: Autumn 2011 - multifamily and commercial real estate financing update -

Dear Friends and Colleagues:

Rates continue to be very low, although given the continuing volatility in world markets, they are never to be taken for granted. Consequently, this is a great time to lock in a low rate – either for immediate delivery, or (if a prepayment penalty prevents you from being able to close immediately), then by obtaining a forward commitment, to lock now, but delay the closing until well into 2012.

If you own multifamily properties or serve on the board of directors of a stabilized asset, (particularly multifamily, mixed-use and cooperative buildings) and feel that rarely seen 10-year fixed rates in the 4% range, or 5-year rates in the mid-3%’s, are worthy of serious consideration, then now is the right time to review prepayment penalties, as well as to evaluate current and future capital improvement funding needs.

Forward commitments – a powerful tool:

Some borrowers may conclude that while they would love to refinance; they are “locked out” by a yield-maintenance pre-payment penalty. Depending upon how much time remains before the penalty decreases or disappears, there may be a solution. Typically nine months is about the longest forward commitment time frame that makes economic sense. If you can’t refinance until 2013, for example, then it’s still too early, but our team would be happy to track your mortgage details and alert you when the time becomes right to consider moving forward.

For example, we have obtained a 4.25%, $10,500,000 forward commitment to refinance a 157-unit mixed-use cooperative on Manhattan’s Upper West Side with a rate that was locked upon acceptance of the Term Sheet, but with the closing set to occur around January 15th, 2012. The rate was fixed for 10 years, with an amortization schedule of the borrower’s choice: either a 30-year schedule or interest-only. The deal also features a $500,000 floating rate, unsecured line of credit priced at LIBOR + 200 basis points with a 3.5% floor. The current loan has a very expensive (more than $1 million) yield maintenance prepayment penalty, which will disappear in January 2012, making a forward commitment the perfect “work-around” solution. Note that the term of the loan is 30 years, with the 4.25% rate locked for the first 10 years, and then the rate will adjust every 5 years thereafter. There is no prepayment penalty during the last 21 years of the loan term.

Call for details on how a forward commitment structure can be custom-tailored to allow you or your client to lock in today’s ultra-low rates, but close later, in order to avoid a nasty prepayment penalty. Note that Winter & Company has been invited to speak at the upcoming 30th Annual Housing Conference of the Council of New York Cooperatives. The event will be held this year at Baruch College. Visit www.cnyc.coop for more information on this event to be held on Sunday November 13th, 2011. The panel is titled “Refinancing the Underlying Mortgage” and will run from 2:30 – 4:30.

Other recent activity:

We recently closed a new underlying mortgage for a 12-story, 48-unit luxury doorman building on West End Avenue on Manhattan’s Upper West Side. The loan was structured as a $4,300,000, 10-year fixed rate mortgage along with a $1,000,000 unsecured line of credit. The unsecured credit line will save the borrower ~$28,000 in mortgage recording tax, and give the co-op tremendous flexibility to meet its future needs. It is worth noting that there are no renewal or non-use fees associated with the credit line. The refinancing will net the co-op nearly $3 million of surplus loan proceeds, which will be used to replace windows and upgrade their boiler, and to carry out a variety of other capital improvements and augment their reserve fund.

We recently met with the board of one of NYC’s premier cooperative buildings on Central Park West. Given the extraordinary market conditions and our excellent banking relationships, we can now offer the nearly 200-unit building a $14,000,000, 10-year fixed rate loan priced in the high 3% range with no bank origination or commitment fees, and with a prepayment penalty for the new loan of only 3,3,3,2,2,2,1,1,1,0 (with the same pricing either interest-only or amortizing on a 30-year schedule at the borrower’s discretion).

While most borrowers tend to prefer 7 or 10-year fixed-rate loans, it is worth noting that 5-year fixed rates are still available in the mid 3% range for quality multifamily and cooperative underlying mortgages. More specifically, this pricing is available for loans with a 30-year amortization schedule, and with no points payable to the lender. Rates for mixed-use, retail and other commercial loans are slightly higher depending upon the loan-to-value ratio, the quality of the tenancy, the percentage of commercial-to-total income and the duration of the leases.

Acquisition and development financing returns, albeit very selectively:

So little new development has taken place in the NYC Metro area over the past 3 or 4 years that demand for new condominiums in choice locations is, in some cases, beginning to exceed supply. This is especially true at the high end of the market in hot neighborhoods like TriBeCa and SoHo. We have been closing loans for developers to acquire development sites and then arranging construction loans at rates in the 4.5% - 5.5% range. We recently closed a $6 million site acquisition loan for the TOE (time-of-the-essence) purchase of a $10 million 75’ wide development site on Leonard Street in TriBeCa. While the plans and approval are still being finalized, the commitment letter for the $16,160,000 construction loan has been issued and delivered to the borrower. In addition to arranging the acquisition and construction financing, Winter & Company successfully sourced and arranged the joint venture equity for this transaction. The best joint venture partners add much more to the equation than mere money, and such was the case here. The new partners not only contributed ~88% of the equity, they also bring 25 years of development experience to bear, which can only further strengthen an already impressive development team.

The key, of course, is a great site/great location purchased at the right price. Acquisition and development financing is only being offered to strong, experienced developers with compelling projects, a meaningful track record, significant net worth and most importantly, adequate liquidity. These days, developers need more equity to get in the game in today’s more conservative lending environment because construction financing, while selectively available is based upon more conservative leverage (in the 55%-70% range).

Let us know if you would like to discuss any loan scenarios. You can reach me at your convenience if you would like to discuss any of the above at (212) 532-1122 x1 | gregg@winterandcompany.com.

Best regards,

Gregg Winter,
President