Project Construction Site

SANTA MONICA, CA-The developer of a 50,000-square-foot UCLA outpatient medical facility that is under construction here has secured a 12-month forward financing commitment of $38 million arranged by George Smith Partners. The commitment assures non-recourse construction-loan take-out funding at completion, locks in a fixed 5.67%, 10-year interest rate and reduces the developer’s risk, according to the GSP team that arranged the deal. The financing was arranged by George Smith SVP Steven C. Orchard, supported by a team including principal and managing director Gary Mozer, SVP J. Jay Brooks, SVP Josh Roseman and assistant VP Scott Swisher.

The project is an outpatient oncology medical center that is scheduled to be completed in December. It is pre-leased to the University of California Los Angeles, features special improvements for imaging and radiation services, offers a robotic six-floor subterranean parking garage, and promises LEED Gold certification.

Orchard, in a GSP announcement, explained the deal: “The borrower wanted to eliminate financing risk and lock-in returns, given market volatility. But lenders have recently refused to commit more than three to six months before funding, and premiums for such hedging were prohibitive.” The terms that GSP negotiated, Orchard said, exploit the low-interest-rate environment and control exposure to inflation during the remaining construction period.

Brooks noted that GSP “worked closely with a select group of capital sources” to find the right solution. “Conduits issuers would not go more than three months forward,” he said. “The option of a CTL bond issuance was obstructed by some non-conforming lease terms. So we depended on our relationships with several major pension funds.”

Mozer described the deal as the most significant forward-funding commitment the firm has arranged in some time. “It took considerable effort getting everyone comfortable,” he explained. “The lender had to establish confidence in the borrower’s construction process and prove out their ability to deliver the building and effectuate the lease. Then the lender really keyed-in on the tenant’s credit; today, even UCLA’s investment grade AA rating was under the microscope.”

A key challenge included the high loan-per-square-foot ratio of $760. “Very few quality medical buildings trade in West L.A., and this loan implies a very high loan-per-square-foot ratio, so it is difficult to comp. The lender was comfortable due to the asset’s unique location, UCLA’s 30-year commitment, special purpose improvements, and significant excess parking income attributable to the developer’s innovative robotic parking system.”

According to a previous GlobeSt.com report, developer Sixteenth Street Medical Center LP closed on a $28.7 million construction loan from US Bank that was arranged by GSP in 2010. Before that, GlobeSt.com reported in early 2010 that UCLA signed a 30-year, $147 million lease for the medical facility.