SAN PEDRO, CA-The owner of a 290,000-square-foot class A officebuilding here now has a new $19.5 million loan despite theobstacles to refinancing that were presented when the building'smajor tenant gave notice, in the middle of loan negotiations, thatit planned to leave the building. At the time the tenant gavenotice, the Marcus & Millichap Capital Corp. team of MichaelDerk, Jake Roberts and Anita Paryani was halfway through whatlooked like it would be a simple long-term refinancing of theproperty because of its quality, strong ownership and creditworthytenants.

But when the tenant gave notice, which meant that the buildingwould be 66% vacant, "It absolutely changed the game plan," Derktells The Marcus & Millichap team had beennegotiating with long-term lenders but had to start all over and"go for a bridge lender because no long-term lender would do thedeal with 66% vacancy," explains Derk, who is a seniordirector/vice president in the firm’s Long Beach office. Robertsand Paryani are senior director/vice president and senior director,respectively, in the West Los Angeles office.

The Southern California-based building owner now has athree-year, interest only recourse bridge loan with a commercialbank at a loan-to-value ratio of 60% at a 5% adjustable interestrate, but even the bridge loan presented challenges in light of thelooming occupancy at the building and the region's weak officemarkets. "A lot of bridge lenders were not interested because SanPedro is a tougher market" even than nearby Long Beach, whereoffice vacancy rates are in the high teens, Roberts says. "Thespace can be leased, but it will take a while."

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