LOS ANGELES—Local investor WJM LLC has secured a $15.7 million first mortgage debt loan to refinance Jewelry Mart, a 12-story, 110,000-square-foot retail and office building located in Downtown Los Angeles’ jewelry district. WJM came to Quantum Capital Partners with a tall order: the benefits of a CMBS without the disadvantages of a CMBS loan. The solution was to secure a bank loan that mimics a typical CMBS loan.
“The borrower wanted low interest rate, non-recourse debt, but they didn’t want all of the cost reserved property reports and pre-payment penalties that a CMBS loan has,” Quantum Capital managing director Jonathan Hakakha tells GlobeSt.com. “We got everything that a CMBS loan has without all of the negatives of a CMBS loan.” The final loan had a low 10% recourse with a 10-year term, a 4.5% interest rate and a flexible prepayment schedule. The loan was underwritten at 70% loan-to-value.
Securing 10% recourse on a bank loan was challenging. “Banks typically don’t do full leverage, non-recourse transactions,” Hakakha explains. “They will do non-recourse at a lower leverage point; however, we were able to demonstrate the borrower’s strength and their knowledge in this marketplace and this district.” The B-class property has 95% occupancy.
WJM needed to refinance the property because it had a 10-year CMBS loan that was maturing, and it was at a higher interest rate. Quantum Capital paid the loan off right at the beginning of the open-window component.
Hakakha was able to secure the unique loan because of his knowledge in the area. He currently has two deals underway in the downtown market totaling $60 million, and he recently secured five permanent financing loans in the nearby fashion district totaling $22 million. He often finds borrowers looking to escape the maintenance requirements of CMBS. “In this market, there are a lot of older buildings that have some deferred maintenance to them,” he says. “CMBS wants you to fix any immediate repairs and they reserve for any other deferred maintenance for the life of the loan. Additionally, this market has short-term leases and a lot of month-to-month tenants, and on a CMBS loan you would have to have ongoing tenant improvement and leasing commission reserves. CMBS really ties your hands for the term of the loan. The bank loan we secured doesn’t have any of that.”