SAN PEDRO, CA-The owner of a 290,000-square-foot class A office building here now has a new $19.5 million loan despite the obstacles to refinancing that were presented when the building's major tenant gave notice, in the middle of loan negotiations, that it planned to leave the building. At the time the tenant gave notice, the Marcus & Millichap Capital Corp. team of Michael Derk, Jake Roberts and Anita Paryani was halfway through what looked like it would be a simple long-term refinancing of the property because of its quality, strong ownership and creditworthy tenants.

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

The Southern California-based building owner now has a three-year, interest only recourse bridge loan with a commercial bank at a loan-to-value ratio of 60% at a 5% adjustable interest rate, but even the bridge loan presented challenges in light of the looming occupancy at the building and the region's weak office markets. "A lot of bridge lenders were not interested because San Pedro is a tougher market" even than nearby Long Beach, where office vacancy rates are in the high teens, Roberts says. "The space can be leased, but it will take a while."

Marcus & Millichap took the deal to 26 different sources and found only two or three who were interested. What ultimately sealed the deal was that the borrower is very well capitalized and was willing to agree to recourse in addition to putting in additional cash to pay down the previous loan, which was a CMBS loan that matured on Sept. 1. In addition, the lender was looking for an opportunity to establish an ongoing relationship with the borrower, Derk adds.

The building, called Pacific Place, is at 222 W. Sixth St. The tenant that gave notice, Northrop, occupies 177,505 square feet of the 289,619-square-foot, 11-story office tower, which was built in 1990.

Derk says the lender agreed to the 5% interest rate because of the recourse provision and because of its interest in establishing a strong relationship with the borrower. Says Roberts, "From our perspective, it is an extremely conservative loan, but it just had some hair on it that a lot of lenders weren't willing to work through. In the end, it's a very good deal."