jp morgan mulls first ‘horizontal’...
TRANSCRIPT
See GRAPEVINE on Back Page
16 LARGEST LOANS DEFEASED IN 2016
24 SECURITIZATION PROGRAMS
2 Conduit Spreads Widen in Thin Market
2 Mortgage Sought for Manhattan Hotel
4 Austin Shop Rolls Out Loan Platform
4 C-III Nabs B-Piece on ‘EB’ Offering
6 ‘Green’ Agency Loans Entice Owners
8 Fannie Offering Tests ‘Green’ Bonds
10 Buyers Snap Up Highwoods’ Bonds
10 Apollo Finances South Beach Hotel
12 Builders of Texas Offices Seek Loan
12 PNC to Finance Utah Office Purchase
14 Defeasance Plunged 23% Last Year
18 Shorenstein Eyes Loan for LA Offices
20 MetLife Backs Rockpoint’s SF Deal
20 Buyer Taps CBRE for Freddie Loan
40 Shop Expands Bridge-Loan Platform
42 INITIAL PRICINGS
Veteran originator Patrick McAllister is joining JLL as an executive vice presi-dent. He starts Monday in San Francisco, working on multi-family agency lending and reporting to managing director John Manning. McAllister had been a director at Prudential Mortgage Capital, where he spent four and a half years. Before that, he was at Wells Fargo for four years.
Industry veteran Tom MacManus joined A10 Capital last week as president of strategic accounts, a newly created
Conduit Scorecard: Fewer Shops, Less ActivityConduit shops are coming to grips with a shrinking universe of lending oppor-
tunities.Their operations are being hamstrung not only by new regulations that have
forced tighter lending standards, but also by the timing of the rules — at the point of the real estate cycle when many borrowers need looser loan terms.
The upshot: Conduit operators are resigned to being part of a smaller industry for the foreseeable future.
“The first half is supposed to be the busy season,” said one veteran lender at a nonbank securitization program. “But we’re already halfway through the first quar-ter, and we can see it’s definitely not what we used to think of as busy. But it’s also not terrible. It’s what I could call ‘meh.’ ”
One issue is the “wall of maturities,” which refers to the avalanche of 10-year securitized loans that were originated at the peak of the last cycle, in 2006 and
See CONDUIT on Page 22
JP Morgan Mulls First ‘Horizontal’ OfferingJ.P. Morgan, Starwood Capital and LNR Partners are mapping plans for a conduit
deal next month that could be the first use of the “horizontal-strip” option under new risk-retention regulations.
J.P. Morgan and Starwood will contribute the conduit loans, and Starwood affili-ate LNR will serve as the risk-retention party. The remaining question is whether the risk-retention piece will be structured as a vertical strip made up of 5% of each class or as a 5% horizontal strip at the bottom of the capital stack. Either way, LNR would retain the bonds for the long term.
The firms evidently are leaning toward the horizontal-strip option, although a final decision hasn’t been made. Many market pros hope the horizontal-strip option is chosen, because that would provide pricing guidance for such deals. Issuers have already tested the two other allowable options — the 5% vertical strip and an
See HORIZONTAL on Page 46
Simon Seeking to Refinance Giant Calif. MallA Simon Property partnership is asking lenders to bid on a $585 million mort-
gage for one of the largest malls in the U.S.The team is seeking to refinance the 2.3 million-square-foot Del Amo Fashion
Center, in Torrance, Calif. The request is for a fixed-rate loan with a term of about 7-10 years. Simon appears to be pitching the assignment to lenders without the aid of a broker.
The early word is that balance-sheet lenders will probably take a run at the loan, but it could also be a good fit for commercial MBS platforms, which might opt to securitize the debt via a single-asset offering.
Simon, an Indianapolis REIT, holds a 50% interest in the upscale, regional mall. Its partners are Farallon Capital of San Francisco and J.P. Morgan Fleming.
The existing debt on the property was originated by a group of banks in 2013 and modified in 2015, when the balance was increased from $310 million to $510 mil-lion. There were also some changes in the lineup of lenders in the syndicate. Bank of
See SIMON on Page 44
THE GRAPEVINE
FEBRUARY 17, 2017
Conduit Spreads Widen in Thin MarketThe recent commercial MBS rally appears to have petered
out, judging from the pricing of the third conduit deal to be floated under new risk-retention rules.
The benchmark bonds in the $855.7 million issue by Barclays, UBS and Rialto Capital went out the door yesterday with a spread of 94 bp over swaps, after being shopped by dealers at 92-bp area (see Initial Pricings on Pages 42-46).
That was up from 88 bp on the equivalent long-term super-seniors from the previous conduit deal, a $977.1 million offer-ing by Wells Fargo, Morgan Stanley and Bank of America that priced Feb. 2 (BACM 2017-BNK3). On the first such deal of the year, a $1.3 billion issue by Citigroup and Deutsche Bank (CD 2017-CD3) that priced Jan. 27, the benchmark spread was 90 bp, down sharply from a 114 bp average in December.
The spread discrepancy was especially pronounced at the bottom of the investment-grade capital stack. The triple-B-minus bonds in this week’s offering (BBCMS 2017-C1) went for 450 bp, up from price guidance of 425-bp area. That marked a sharp jump from 350 bp in the BACM deal and 380 bp in the CD transaction, but it was still below the corresponding range of 565-575 bp in December.
Some traders and investors said the BBCMS deal was a bit of an outlier, and wasn’t a clear indicator of prevailing new-issue spreads in the conduit sector. They pointed to buy-side concerns about the bonds’ future liquidity in the secondary market, noting that bookrunners Barclays and UBS aren’t con-sidered to be market-makers on the same level as the banks that led the BACM and CD transactions.
The bond pros added that Barclays and UBS — unlike the dealers on those previous conduit issues — didn’t keep any “skin in the game” under federal risk-retention rules that took effect just before yearend.
Although the BBCMS deal was conducted via a Barclays shelf and three lenders contributed collateral, Rialto stepped up as sponsor and took down the entire risk-retention piece, a “vertical” strip equivalent to 5% of every class. In the BACM transaction, Wells, Morgan Stanley and BofA divided and retained a 5% vertical strip in proportion to their collateral contributions. In the CD transaction, Citi and Deutsche used the “L-shape” option, retaining their pro-rata shares of a 1.9% vertical strip and handing a 3.1% “horizontal” portion to the B-piece buyer, KKR.
Elsewhere in the new-issue market this week, Goldman Sachs, Barclays, Deutsche and Morgan Stanley floated a $975 million offering backed by a seven-year mortgage on the 1.6 million-square-foot One Market Plaza office complex in San Francisco (OMPT 2017-1MKT). The banks originated the fixed-rate debt on Jan. 19 for Paramount Group and Blackstone, with Goldman funding 40% of the loan balance and the others kicking in 20% each. Oxford Properties, the Toronto-based real estate arm of Ontario Municipal Employees, purchased the hori-zontal risk-retention strip.
The triple-A class priced in line with the dealers’ spread
guidance at 90 bp over swaps. The spread was 113 bp on the tranche rated AA-/AA+ by S&P and Kroll, down from price talk of 120-bp area. It was 130 bp on the A-/A+ bonds, down from talk of 140-bp area.
Both deals priced amid growing sentiment that the Federal Reserve might raise short-term interest rates at its next policy meeting on March 14-15. Fed chairwoman Janet Yellen raised that possibility while speaking before Congress on Tuesday, casting doubt on widespread predictions that another rate hike wouldn’t be forthcoming until June. After keeping short-term rates near zero since the crash, the Fed boosted them by 25 bp in December.
Mortgage Sought for Manhattan HotelThe owner of a luxury hotel on Manhattan’s Upper East Side
is looking to lock in a $265 million mortgage.Alexico Group wants to line up a five-year loan on the 150-
room Mark Hotel, and is taking quotes on deals with both fixed and floating rates. Eastdil Secured is showing the assignment to lenders on behalf of the New York developer. In addition to banks, a source said debt funds, which are increasingly active, are expected to compete for the loan.
The leverage is described as about 65%, which puts the property’s value between $400 million and $410 million. The collateral consists of the leasehold interests in the hotel and an adjacent four-story townhouse that contains a restaurant and an art gallery. Most of the loan proceeds would be used to retire $220 million of existing debt.
Alexico bought the property in 2006, paying Bermuda-based Mandarin Oriental International $150 million. It then undertook a wide-ranging renovation that was to include converting a few dozen hotel rooms into cooperative apartments. But that plan fell victim to the financial crisis and recession, and Alexico defaulted on more than $300 million of debt.
In 2011, New York fund operator Dune Capital bought the senior mortgage from Anglo Irish Bank for $190 million. Dune financed that purchase with a $150 million floating-rate loan from Deutsche Bank. Dune then worked out a restructuring with Alexico, and in 2015, the property was refinanced with a package that included a $160 million mortgage from Deutsche and a $60 million mezzanine loan. The mezzanine piece was acquired last year by New York investment shop RFR Holding.
The hotel, at 25 East 77th Street, was constructed in 1927 and originally known as the Hyde Park Hotel. Amenities include a concierge, services for children and pets, a fitness center with a trainer, meeting space, and a restaurant and bar.
February 17, 2017 2Commercial Mortgage ALERT
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February 17, 2017 4Commercial Mortgage ALERT
Austin Shop Rolls Out Loan PlatformWorld Class Capital has launched a debt-investment plat-
form that is aiming to originate $2 billion of commercial real estate loans this year.
The lending unit, called World Class Mortgage Capital, is helmed by veteran originator Jeremy Stoler, who joined the Austin shop last month as executive vice president after a three-year stint at Credit Suisse. Stoler, who is based in New York, is in the process of hiring an originations team.
World Class can originate conduit, bridge and mezzanine
loans, as well as preferred equity. The shop expects that con-duit loans will account for roughly half of its business. It targets conduit loans of $2 million to $75 million, with terms of 5-10 years and loan-to-value ratios of up to 75%. Mezzanine and bridge loans can range from $5 million to $75 million, have terms of 2-10 years and increase the total leverage to about 85%. Preferred equity can range from $5 million to $50 million, have terms of 2-10 years and increase the total leverage to 90%.
World Class was founded in 2007 by chief executive Nate Paul. In addition to Stoler, the firm recruited two other Credit Suisse alumni, who joined last year: veteran trader Chris Cal-
lahan, who also had stints at Bank of America and Nomura, and B-piece investor Paul Smyth, who previously worked at C-III Asset Management and ORIX Capital.
C-III Nabs B-Piece On ‘EB’ Offering
C-III Capital has circled the below-investment-grade portion of the first in a planned series of conduit offerings that Wells Fargo will arrange for European banks.
The transaction (WFCM 2017-EB1) will be backed mostly by loans contributed by Barclays, Societe Generale and UBS. Wells will also kick in collateral and will serve as both the bookrun-ner and the risk-retention party.
The arrangement was devised because the European banks are reluctant to fulfill the new risk-retention responsibility, which requires one or more lenders to retain 5% exposure to transac-tions for the long term. Wells will retain 5% of each class of the securitization.
C-III will acquire the remain-ing 95% of the below-investment-grade classes. That B-piece won’t be subject to retention rules and can be traded at any time.
Last year, C-III acquired the B-pieces of four conduit deals totaling $3.2 billion, ranking fourth among buyers.
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February 17, 2017 6Commercial Mortgage ALERT
‘Green’ Agency Loans Entice OwnersFannie Mae and Freddie Mac are gaining traction in their
efforts to encourage owners to make multi-family properties more energy-efficient.
As part of their regulatory mandate, both agencies offer lower rates and other favorable terms if operators take steps to reduce the use of energy or water.
Fannie purchased $3.6 billion of “green” loans last year, up tenfold from 2015. And Freddie, whose program started last August, acquired $3 billion of such mortgages by yearend.
While there are differences between the two agencies’ approaches, the main features are similar: Borrowers can get a rate cut of up to 39 bp and a higher amount of proceeds if energy-savings measures have been taken. What’s more, both agencies cover all or part of the cost for the required energy audit, which can range up to $8,500.
Owners, in turn, can reduce their operating costs and tout lower utility expenses to prospective tenants. A Freddie survey released in November found that 70% of tenants were “moder-ately to greatly concerned” about higher utility bills, exceeding the 63% level of concern about potential rent increases. Also,
84% viewed energy-efficient properties generally as better places to live, and 47% said they would be willing to pay more to live in a green building.
“This is a no-lose proposition for the borrower,” said David Leopold, vice president of affordable-housing production at Freddie.
The programs cover both con-ventional and affordable-housing mortgages on either new prop-erties that already have energy-saving features or old complexes where efficiencies are imple-mented as part of renovations. “Any loan can be green,” said Chrissa Pagitsas, director of Fan-nie’s green program.
The energy audit, required for loans on properties awaiting ren-ovations, spells out in detail what steps must be taken. Part of the loan balance is held back at clos-ing and can be drawn down over time to cover the upgrades. Prop-erty owners have to track their energy savings, but suffer no con-sequences if the minimum targets aren’t achieved. They are required to report their results to databases that track which improvements are most beneficial for multi-fam-ily owners.
The typical borrower is look-ing to upgrade aging properties, said Mitchell Kiffe, a senior man-aging director at CBRE, which was the biggest originator of Freddie green loans last year. “The dis-count on the loan interest rate is a significant cost-of-capital reduction for borrowers,” he said. “They’re already planning on
See GREEN on Page 40
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February 17, 2017 8Commercial Mortgage ALERT
Fannie Offering Tests ‘Green’ BondsFannie Mae is starting to structure separate bond classes
in its securitizations that are backed solely by “green” multi-family loans.
The agency is hoping the bonds will broaden its investor network by attracting buyers that pursue environmentally friendly investments.
As part of a mandate from its regulator, Fannie is encourag-ing its lenders to originate mortgages on energy-efficient prop-erties. Last year, Fannie acquired $3.6 billion of green loans, up tenfold from 2015 (see article on Page 6).
Now Fannie is creating bond classes collateralized by such loans. In a $1 billion offering that priced this week (FNA 2017-M2), the agency included two bond classes totaling $611.7 million that are tied to 30 fixed-rate green loans with 10-year terms. The deal’s only other tranche is backed by $393.3 mil-lion of conventional seven-year floaters that are in a separate collateral pool. Citigroup ran the books on the transaction (see Initial Pricings on Page 44).
Just under half of the green bonds were acquired by about a half-dozen funds that have mandates to make environmentally friendly investments. “We were really trying to reach out to a
new investor base, and the response was very good,” said Lisa Bozzelli, a director in Fannie’s capital-markets group, adding that the favorable results will likely lead the agency to continue the structuring strategy in future transactions.
Some of the acquirers are part of larger buy-side firms that have previously invested in Fannie’s multi-family securitiza-tions, while others were complete newcomers, Bozzelli said. Attracting both types will be key to drumming up demand and potentially driving down spreads on future offerings.
Fannie offers discounted loan spreads to the owners of prop-erties that either already qualify as energy efficient or have a plan in place to make improvements that will save energy or water consumption or both by at least 20%.
The green bonds in this week’s transaction achieved spreads matching the prevailing levels on Fannie’s regular tranches. They also priced in line with spread guidance. A $536.7 million long-term class went out the door at 66 bp over swaps. A $75 million tranche with a weighted average life of 6.1 years priced at 50 bp.
Freddie Mac started a green-loan program in August and has since acquired $3.3 billion of such mortgages. Those loans will be securitized, but there’s no word on whether Freddie plans to create green bond classes.
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February 17, 2017 10Commercial Mortgage ALERT
Buyers Snap Up Highwoods’ BondsInvestors lined up this week for a $300 million corporate-
bond issue by Highwoods Properties, the first REIT to tap the market in three weeks.
Partly due to pent-up demand for fresh paper, Highwoods’ issue was more than six times oversubscribed, enabling the Raleigh office REIT to fetch a much-higher price than dealers expected.
The 10-year bonds, rated Baa2/BBB by Moody’s and S&P, have a 3.875% coupon. They flew off the shelves Monday with a 4.038% yield, or 160 bp over 10-year Treasurys. That was after being shopped with initial spread guidance of 185-bp area by bookrunners Bank of America, Jefferies, Wells Fargo, BB&T and U.S. Bancorp.
Highwoods’ bonds continued to gain value in the secondary market, trading Tuesday at a spread of just over 150 bp.
Coming off another record year for REIT-bond volume, the pace of issuance has slowed sharply this year. Including High-woods, six REITs have floated just $2.7 billion of unsecured bonds so far. That’s down sharply from $7.2 billion at the same point a year ago.
The Highwoods transaction marked the longtime issuer’s return to the bond market after a gap of almost two years. It also was the first REIT-bond offering since late January, when nonissuing “blackout” periods started in advance of the release of yearend earnings reports. “Highwoods is on the early end of the reporting cycle,” which enabled it to jump into the mar-ket and take immediate advantage of favorable supply-demand technicals, one REIT-bond trader said.
What’s more, Highwoods’ earnings report was viewed favor-ably by investors because it showed sharp improvement in a key measure of leverage last year. The company’s total debt at yearend was 4.8 times earnings before interest, taxes, deprecia-tion and amortization. That was the lowest level in company history, down from 6.1 a year earlier.
Highwoods will use the proceeds of this week’s transaction to help pay off $397.7 million of bonds, with a 5.85% coupon, that come due on March 15.
Apollo Finances South Beach HotelApollo Commercial Real Estate Finance originated a $60 mil-
lion floating-rate bridge loan last month on a Miami Beach hotel.The 250-room Nautilus, in the South Beach district, is
owned by a partnership led by Quadrum Global of New York. CBRE brokered the loan, which has a two-year term and three one-year extension options.
The Art Deco property, at 1825 Collins Avenue, opened in the early 1950s as the Nautilus Hotel and later operated as the Continental South Beach Hotel. In 2011, Quadrum (then part of Cube Capital of London) teamed up with InSite Group of Fort Lauderdale, Fla., to buy it from an RFR Holding partnership for $61 million. The Quadrum team closed the property, overhauled it and re-opened it in October 2015 under the Nautilus name.
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Builders of Texas Offices Seek LoanA development group is in the market for about $110 mil-
lion of debt to finance construction of a pre-leased office com-plex near Houston.
The project is within the Springwoods Village development in Spring, Texas. Computer company HP has agreed to lease virtually all of the planned 380,000-square-foot property when it’s completed around the end of next year.
Eastdil Secured is pitching the lending assignment on behalf of a partnership that includes Houston developer Patrinely Group, USAA Real Estate of San Antonio and CDC Houston, an affiliate of New York-based Coventry Development.
The group plans two buildings on a site near the intersec-tion of Interstate 45 and Grand Parkway, about 25 miles north of downtown Houston. The cost of development has been esti-mated at $147 million, for a relatively steep loan-to-cost ratio of 75%. However, lenders’ resistance to high leverage would be mitigated by the leasing commitment from an established technology company, which has investment-grade credit rat-ings of Baa2/BBB from Moody’s and S&P. HP has said it will move about 2,400 employees to the complex upon completion.
Springwoods Village is an 1,800-acre master-planned devel-opment slated to include millions of square feet of offices, retail space, hotels and residences. ExxonMobil’s corporate campus is on 385 acres immediately to the north.
The site of the Patrinely team’s project is adjacent to a planned
focal point of Springwoods Village: CityPlace, designed as an urban district with offices, apartments, shops, restaurants and a hotel. Also nearby is the headquarters of Southwest Energy.
HP is one of two companies that resulted when the former Hewlett-Packard divided its business operations in 2015. HP makes hardware, while Hewlett Packard Enterprise is an infor-mation-technology business that focuses on networking, soft-ware, consulting and other services.
PNC to Finance Utah Office PurchasePNC has the inside track to take down a $45 million loan back-
ing the purchase of an office complex outside Salt Lake City.EverWest Real Estate, a Denver investment firm, is buying
the 248,000-square-foot South Towne Corporate Center from a Hines joint venture for about $70 million. Newmark Grubb is advising on both the property trade and the financing.
PNC’s mortgage would be a seven-year, floating-rate deal that likely would be swapped to a fixed rate. A source familiar with the structure said there would be no amortization for the first five years. Pricing is roughly 170 bp over one-month Libor.
The complex is nearly fully leased. It consists of a building at 150 Civic Center Drive, developed in 2000, and a similar-sized structure at 200 Civic Center Drive that was finished in 2006. Houston-based Hines and its partner, Oaktree Capital of Los Angeles, bought the property in 2012 for $44.5 million. The seller was KBS Realty of Newport Beach, Calif.
February 17, 2017 12Commercial Mortgage ALERT
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February 17, 2017 14Commercial Mortgage ALERT
Defeasance Plunged 23% Last YearAfter rising steadily since the crash, U.S. defeasance activity
dropped sharply last year.Some $17.2 billion of securitized conduit loans were
defeased in 2016, down 23% from the previous year’s volume of $22.4 billion, which was the post-crash high, according to a draft of an annual Moody’s report to be released today.
The rating agency expects defeasance to keep decreasing or at least level off this year, as borrowers and lenders work through the remainder of what was once a huge wave of matur-ing legacy mortgages, said Moody’s vice president Gregory
Reed, who worked on the report. While conduit loans originated in 2006 and 2007 accounted for 55% of last year’s defeasance vol-ume, the post-crash vintages will dominate going forward, he said in an interview.
Defeasance is a process that allows borrowers to release prop-erties from commercial MBS loans, which have strict curbs on early payoffs. After an ini-tial period, typically two years, the borrower has the option of replacing the collateral with top-rated government bonds that will provide the same revenue stream and cover the payoff at maturity.
The maneuver can be costly if yields on U.S. Treasurys are well below the rates on the loans being defeased — which has long been the case for legacy debt. Prop-erty owners weigh the expense against the opportunity to reap cash by selling or refinancing the collateral properties.
Defeasance surged for several years amid a steady rise in lend-ing and CMBS issuance. It fell off in last year’s second half, partly because CMBS shops became more selective about their origi-nations as they prepared to com-ply with risk retention rules that took effect on Dec. 24. “The spike in interest rates after the election definitely caused many potential defeasance transactions to fall apart in late November on into December,” Reed added.
Mortgages on multi-family properties accounted for 38% of
See DEFEASANCE on Page 16
www.us.jll.com/capitalmarketsTotal global production volume in 2016
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Alecta Global PortfolioU.S. and U.K.Multi-sector sale$2,300,000,000
Asia Square Tower OneSingaporeOff ice sale$2,450,000,000
The Shops at CrystalsLas Vegas, NV Retail sale $1,100,000,000
HFZ PortfolioNew York, NY Residential condo financing $600,000,000
Gold Coast PortfolioNew York MetroMultifamily sale$400,000,000
BP PortfolioU.S. and U.K. Off ice sale and leasebackTerms confidential
Pasadena Towers Los Angeles, CAOff ice sale$256,000,000
5900 WilshireLos Angeles, CAOff ice sale and financingTerms confidential
229 West 43rd Street New York, NYRetail condominium refinance$370,000,000
21.225.9
32.4
4.91.3 2.8 4.9 5.9
13.2
20.9 22.417.2
’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16
Annual Defeasance ($Bil.)
Source: Moody’s
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February 17, 2017 16Commercial Mortgage ALERT
Defeasance ... From Page 14
last year’s defeased loans by balance, including Freddie Mac loans. Next came debt on offices (22%), retail (15%), hotel (10%) and industrial (5%) properties.
The largest defeasance of the year involved a $250 million loan to Hartz Mountain Industries of Secaucus, N.J., on the 274,000-sf office building at 667 Madison Avenue in Midtown
Manhattan. Originated with a 5.6% coupon by Goldman Sachs and due to mature this month, the 10-year legacy mortgage was part of the collateral for a $6.6 billion offering (GCCFC 2007-GG9). It was defeased in September, when Deutsche Bank wrote a new, $254 million mortgage with a 3.2% coupon. The bank securitized $214 million of that 10-year, fixed-rate debt via a single-borrower offering (COMM 2016-667M) and fun-neled the rest into a conduit issue (CD 2016-CD2).
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Largest Loans Defeased in 2016 Balance at Defeasance Origination Maturity ($Mil.) Type Date Date Securitization667 Madison Avenue, New York $250.0 Office 1/16/07 2/6/17 GCCFC 2007-GG9540 West Madison Street, Chicago 235.0 Office 1/6/13 1/6/18 COMM 2013-LC6, 2013-CCRE685 10th Avenue, New York 226.0 Office 6/1/07 6/1/17 COMM 2007-C9, CD 2007-CD5One Seaport Plaza, New York 225.0 Office 12/20/06 1/1/17 MSC 2007-HQ11Waterview, Rosslyn, Va. 210.0 Office 6/1/07 6/1/17 COMM 2007-C9Five Penn Plaza, New York 203.0 Office 4/2/07 5/1/17 JPMCC 2007-LDP11Ritz-Carlton South Beach, Miami Beach 181.0 Hotel 7/11/06 7/11/16 CSMC 2006-C4USFS Industrial Distribution portfolio 1 179.5 Industrial 7/3/07 8/1/17 COMM 2007-C9, MSC 2007-IQ16Ritz-Carlton, Key Biscayne, Fla. 160.0 Hotel 5/1/07 6/1/17 COMM 2007-C9Ashford Hospitality pool 5 158.1 Hotel 4/11/07 4/11/17 WBCMT 2007-C34
Source: Moody’s/CMBS Database
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February 17, 2017 18Commercial Mortgage ALERT
Shorenstein Eyes Loan for LA OfficesShorenstein Properties wants to line up a $135 million mort-
gage on a redeveloped office property in Los Angeles that is fully pre-leased.
The 257,000-square-foot Ford Factory is a century-old industrial complex that Shorenstein recently finished convert-ing into office space. The San Francisco investment firm began contacting banks and other lenders directly, without a broker, over the past week or so. It’s seeking floating-rate debt with a term of about seven years and interest-only payments for most
or all of that span. About $110 million of the loan would be funded up front, with a $25 million future-funding component.
Warner Music has leased the entire building, which will become its West Coast headquarters. The agreement, signed about four months ago, takes effect in August and runs a little over 12 years, with an option to renew for another 10 years. According to local press reports, the annual rent begins at about $10 million, but Warner will receive a 75% discount while it spends $40 million to $50 million building out its space and prepares to move in next year.
The property consists of five- and two-story sections, built in stages starting in 1912. It was one of the earliest California pro-duction facilities for Ford Motor. It later served as manufactur-ing and warehouse space for a few other companies, including American Apparel. Shorenstein acquired the complex in 2014 for $35 million and began the rede-velopment.
Shorenstein kept some of the structural details while refurbish-ing the facade and reconfiguring the interior as creative-office space. It modernized building systems and added a garage and 15,000 sf of landscaped com-munal space. The plans initially called for some street-level retail space, and it’s unclear if that will be created or if Warner will occupy that space, too.
The property is at 777 South Santa Fe Avenue, on the edge of the Arts District, about two miles south of Downtown Los Angeles.
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