With $30.3 million of a $40.8-million loan from Denver-based Newman Financial Services in hand, Steadfast Commercial Properties in February folded in several million of its own cash to pay a little more than $37 million for the 736,000-sf retail property in Federal Way.

Officials at Long Beach, CA-based Steadfast did not return phone calls seeking comment on Tuesday, but sources at Newman tell GlobeSt.com that the $9.5-million holdback is for renovations to the one-story enclosed regional mall, which sits on 81.8 acres and includes several unconnected pad buildings occupied mostly by restaurants.

The center was constructed in 1975 and has not since undergone a substantial renovation, according to Newman. As a result, the one-time premier regional mall has experienced deterioration in its market share. Steadfast's goal is to restore the mall to its former status.

Newman's $40.8-million loan funded 80% of the $51-million total project cost. The loan was split into two notes, consisting of a senior loan in the amount of $34 million and a junior loan of $6.8 million. The senior loan was sized on a current "exit basis" utilizing current leases in place.

The junior loan was sized based on the proforma NOI after renovations and the re-tenanting of the property. A holdback for tenant improvements and leasing commissions was also incorporated and will be dispersed as leases are executed.

The floating-rate senior loan was priced with a spread over 30-day LIBOR. The junior loan carried a fixed rate in the mid teens and is eligible for interest rate reductions as leasing hurdles are achieved. Both loans are interest-only and carry a 36-month term. An origination fee was collected at the closing of the loans. The exit fee will be reduced if Newman Financial Services or other GMAC Commercial Holding Corp. entity provides the takeout financing.

"In today's turbulent real estate market, it is not too often one finds a distressed asset that has a good location, value-added play and sufficient cash flow to cover its debt service," said Jay Rollins, a senior vice president of Newman Financial Services, a division of GMAC Commercial Holding Capital Corp.

The renovation will include updating the mall's interior and exterior. Exterior work may include the addition of more pad buildings along South 320th Street. S.D. Deacon of Bellevue, WA has been selected as general contractor and project manager.

Instant Insights /

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