Financing America's Triple Net Lease Properties And 1031 Exchanges Since 1971
5 Oct 2011

Company Newsletter : October, 2011

Marabella Commercial Finance, Inc. closes 2 Walgreens Loans in 3rd Quarter of 2011 and receives commitment on new Walgreens property on October 4, 2011. Marabella also is preparing to fund 7-Eleven property with repeat client that has received a commitment letter.

Marabella Commercial Finance, Inc. funded a $3.5 million loan for a Walgreen corporate leased pharmacy. The Buyer for this transaction was involved in a 1031 exchange transaction. The Borrower requested a long fixed rate loan term and amortization. Marabella Commercial Finance, Inc. arranged a Bank Portfolio loan with a 25 year amortization and a 25 year term fixed for 10 years and thereafter, the rate adjusted and will be fixed for 5 year periods at a 225 Basis Points over the 10-year treasury bill. In the first rate adjustment (prior to year 11 of the loan) the loan has a ceiling rate of 7.50%. The Borrower wanted a forward rate lock so Marabella Commercial Finance, Inc. structured an approximate 45 day forward rate lock and the rate was locked early in the process at a very low 5.375%. This loan was Non-Recourse with Standard Carve-Outs. The prepayment penalty for this loan was a very friendly $2,500 for the first 20-years of the loan and the Borrower has the right to prepay up to 10% of the outstanding principal balance per year with no prepayment penalty. This loan was applied for on around July 15, 2011 and funded on August 12, 2011.

For the other Walgreen Corporate Leased Property Marabella Commercial Finance, Inc. arranged a loan amount of $3,115,000. The rate for this transaction was fixed at 5.125% for 10 years. This transaction was applied for on June 13, 2011 and funded on August 19, 2011. Terms of this loan (i.e. Amortization, Term, Non-Recourse, Etc..) is similar to the other Walgreen loan mentioned in this Press Release.

One of the Walgreen Borrowers in this transaction was a repeat client for Marabella Commercial Finance, Inc.. In 2003 Marabella Commercial Finance, Inc. arranged financing for the clients 7-Eleven Corporate Leased Gas Station located in California. The other client involved in the transaction was introduced to Marabella Commercial Finance, Inc. by the repeat client.

Marabella Commercial Finance also received a commitment and is closing a refinance loan for a 7-Eleven Convenience Store and Gas Station in Southern California that Marabella arranged financing for the property and the client In 2003. Marabella arranged a loan amount of $800,000 with a 7 year fixed rate of 5.25% which resets after the initial fixed rate period of 7 years. The amortization for this loan is 25 years and the term is 25 years.

Marabella Commercial Finance also received a Conditional Commitment around October 4, 2011 to refinance an additional Walgreen corporate leased transaction. This Walgreen had 10 years remaining so the “Go-Dark-Value” derived by appraiser was an important determination of loan amount and final amortization. With this loan Marabella arranged a 25 year amortization due in 10 fixed for 5 years at an estimated rate of approximately 5.56% (as of the writing of this Newsletter rate had not been locked by Borrower). This loan is Non-Recourse with Standard Bad Boy Carve-Outs. Loan amount for this transaction is $2,800,000. This transaction is expected to close in January of 2012 due to the prepay on the existing loan encumbering the subject property.

Christian S. Marabella interviews Brandon Birtcher of Birtcher Real Estate and Development for Marabella’s YouTube Net Lease Channel and Association of Commercial Real Estate Executives Inland Empire Website at ACRE IE Capital Market Event that took place on September 21, 2011.

Christian S. Marabella of Marabella Commercial Finance, Inc. who is slated to be the 2012 President of ACRE IE had the opportunity to interview Brandon Birtcher of Birtcher Real Estate and Development at the ACRE IE Capital Markets Event which took place at the Ayres Hotel in Ontario, CA on September 21, 2011. In this interview Brandon Birtcher talks about the Turn Key Developments that his company plans to construct for Industrial Build-To-Suits and Distribution Logistic Facilities in the Inland Empire. Birtcher discusses that his company is seeking 50 to 125 acres for these types of developments and buildings will range from
500,000 to 1,200,000 sq. ft. . Currently Brandon is working with rated and unrated credit tenants and is hopeful to structure primary lease terms in the 20 year range that are completely Net Leased. Birtcher mentions that the price of fuel is causing companies to want to be closer to customers and that is why he believes there will be a resurgence of these types of developments in the Inland Empire which is one of the largest markets in the United States.

Life Companies, Banks, Institutional Lenders and CTL Lenders Make Big Come Back in 4th Quarter of 2011

With the CMBS lenders practically out of the market and CMBS spreads widening Life Companies, Banks, Institutional Lenders and Credit Tenant Lease lenders are adding market share to the expense of CMBS lenders. At this time Borrowers are trying to navigate the stormy weather in the financial markets by going to lending sources that they can count on, which can execute and have the highest probability of closing the loan. Life Companies, Banks, Institutional Lenders and Credit Tenant Lease Lenders seem to be the best choice at this time when considering financing for a Walgreen, CVS, Kohls, Jack In The Box, 7-Eleven or other Net Lease Properties. From May of 2010 to around June of 2011 CMBS lenders were in the low 5.00% to 5.50% range for 10 year fixed rate financing with a 25 to 30 year amortization, 65% to 75% LTV and a 9.00% to 10% debt yield. It really seemed CMBS Lending was back for good but most recently CMBS Lenders have began to back pedal due to rising risk premiums and reduced number of loans pegged for securitization. CMBS volume is expected to fall to about $3 Billion in the quarter, less than half the quarterly supply during the first half of 2011. Although the U.S. CMBS Sector will gain a little breathing room in 2012 as the pace of securitized loans reaching maturity slows, according to Fitch Ratings. In transactions rated by Fitch, approximately 1,200 commercial mortgage loans totaling $17.3 billion are scheduled to mature in 2012. This represents a sizeable drop compared to 2000 loans totaling $22.5 that will mature in 2011. At the height of the credit crunch in 2009 spreads on CMBS AAA Bonds surpassed 1500 and today we are around 325 which is up from 250 around October of 2010. Thus CMBS is still not as bad as 2009. As one CMBS Direct Lender we deal with indicated “to us it is not a matter of a lack of liquidity but rather a matter of higher pricing”. Currently CMBS Lenders are quoting in the range of 375 to 400 over the 10 year treasury swap which as of September 30, 2011 was around 2.19% which equates to a rate of 6.00% to 6.50% for a 25 to 30 year amortization due and fixed for 10 years.

Time to Pursue Life Company / Bank / Institutional and CTL Debt

Life Companies
Currently for investment grade credit deals (I.E. Walgreens, CVS, Home Depot, Kohls, Wal-Mart, Etc..) with long term 25 year leases we are seeing rates of 4.30% to 4.60% in markets West of the Mississippi and certain other markets (case by case). This is for a 25 to 30 year amortization, fixed and due in 10 years. Loan to value maximum for this loan is 75% with a 120% minimum debt service coverage ratio. Non-Recourse is easier to get below 65% LTV and Borrower may have to offer up partial or full recourse above 65% Loan To Value. Prepay is normally Yield Maintenance or Defeasance but a friendlier prepay is negotiable at a cost.

Banks
Some Banks in the United States are being affected by the European Debt Crisis while some are not being impacted as much so it is a matter of knowing which Banks are still in the market and can lend without giving a Borrower to much brain damage to get a transaction completed. Currently for investment grade credit deals (I.E. Walgreens, CVS, Home Depot, Kohls, Wal-Mart, Etc..) with long term 25 year leases we are seeing rates of 3.90% and 5.25%. Again some banks are easier to deal with so the lowest rate should not be the ultimate decision to deal with a specific Bank. A Borrower must also consider the Bank being able to get the specific transaction closed. Currently some of the Banks we deal with are offering a 3/5/7/10 year fixed rate loan with a 25 to 30 year amortization. Fees normally with Banks are less than Life Companies, Institutional Lenders and CTL lenders but that is only generally speaking. For Borrowers seeking friendly prepays Banks offer the most flexibility when structuring a friendly prepayment option for a short term Borrower who may want to refinance or sell a property very quickly. Again Non-Recourse is easier to get below 65% LTV and the Borrower may have to offer up partial or full recourse above 65% Loan To Value.

Institutional
We are currently working on a Walgreen transaction in which we are dealing with what we would call an institutional lending source. This specific Walgreen transaction has less than 8 years remaining in the primary lease term so rollover risk needs to be considered. On this loan we are offering a 5 year fixed rate loan at around 5.50% + /- with a 25 year amortization. The loan is Non-Recourse with Standard Carve-Outs and the loan amount is $2.8 Million + /-. Most important consideration of this loan is having the appraiser derive the Go-Dark-Value of the real estate since the Institutional Lender would like to have the Balloon Payment be equal to this amount when the primary term is completed just in case Walgreen decides to terminate the lease and not renew in the options. As it turned out yes the Go-Dark-Value was equal so we did not have to shorten the amortization to pay down the loan faster and the comparables in the area supported the Walgreen market rent and cap rate that the appraiser was utilizing to derive the Go-Dark Value.

Credit Tenant Lease
Wow rates are definitely low for CTL loans for Walgreen and other Investment Grade Credits at this time. Currently we are being quoted for a newly developed Walgreens with 25 years remaining on its primary lease term a 25/25 fixed and fully amortizing loan at around 5.125% which would equate to a loan constant of about 7.00% to 7.20% so if you were to purchase a newly developed Walgreen above a 7.25% to 8.00% cap with 25 years remaining in the lease 90% to 100% financing is possible. Credit Tenant Lease loans are rather expensive so only high leverage is recommend with these loans. Normally they are non-recourse with standard carve-outs.

Contact:
Christian S. Marabella
Phone: (760) 479-0800
24/7 Cell: (760) 803-6464
www.marabellafinance.com

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