Removing the Cost from "No-Cost"
Loan: $80,000,000
Client: An Industrial REIT
Location: Indiana
Budget: 4%
Project: Multi-use retail and commercial
Benefit to Borrower: $3,000,000 Over 3 years
Borrower Situation
One of the project partners is a large life insurance company. Institutional clients tend to make institutional decisions. In this case, the insurer is pressuring the developer to enter into a “no cost” collar. Truth be known, there is no such thing as no-cost!
CIRM Solution
The CIRM advises the partnership, unequivocally, what to do and (more importantly) what not to do, given the current shape of both yield curves. Our analyses and recommendations persuade both the client and (again, more importantly) the insurer to follow a flexible plan sensitive to changes in the economy while providing a known worst case that is acceptable to both.
Result
Without the floor, precise, short-term elections in a falling rate environment saves the partnership over $3,000,000 including the cost of the cap.
