BELLEVUE, WA—Cushman & Wakefield has arranged a $526-million construction-to-permanent loan on behalf of Kemper Development Co. for its 1.5-million-square-foot expansion of the Bellevue Collection, has learned exclusively. Due to both the size and nature of the financing, obtained from the Canada Pension Plan Investment Board, it's unusual in the marketplace, C&W's David Karson tells

“One of the most beneficial features of this loan is that the interest rate is fixed three years forward,” says Karson, a New York City-based executive managing director with C&W's equity, debt and structured finance group. With the loan then converting to four distinct long-term loans, “Interest rate risk is largely eliminated. This is not generally available in the market for this long a period of time. It takes all of the liquidity risk off the table. So if the property doesn't lease well, or it stabilizes into a bad capital markets environment, the owner doesn't have to worry about having a large loan maturity and not being able to refinance or having to invest a lot more equity into the project.”

Normally, Karson says, “when you're doing a big construction project, you're building that with a big construction loan. For a financing of this size, you may be syndicating that to eight or 10 banks, so there's a lot of syndication risk. If you're successful, a loan like that is typically going to carry a floating interest rate and a short-term maturity.”

Following that short term, the borrower has to refinance. In order to do so, the property needs to have been stabilized. “If you haven't leased up the way you thought you were going to lease, or you've done everything right but the capital markets are not there to take out this loan, you have a maturity event.” That would be a tough row to hoe with a loan of the scale that Kemper took out for the Lincoln Square Expansion of its four-million-square-foot Bellevue Collection mixed-use complex in this affluent Seattle suburb.

The single-point loan through CPPIB's CPPIB Credit Investments Inc. subsidiary is considered to among the largest ever in the region's history. “We believed this loan would be difficult to syndicate or securitize, so we felt we had to find a group that would have the capacity to hold a $500- or $600-million loan on its balance sheet and had a source of capital to provide the long term that we were looking for,” Karson says. “We considered some of the large open-end core funds, sovereign wealth funds, insurance companies and pension funds. We literally flew around the world pitching the idea.”

The global search ultimately led the C&W team—which also included Alex Hernandez and Chris Moyer—to CPPIB, which might be likened to “the Social Security of Canada.” Although there were a number of organizations that could have done it, “CPPIB is now the pioneering lender at this type of capital. But now that it's closed, I think that many other lenders that we met with will follow suit and provide this type of capital. It's a great way for them to get exposure to new products in leading markets and develop relationships with some of the vest developers here in the States.” He adds, however, that a financing of this type is complicated enough that it won't be easily obtained.

Already in progress, the Lincoln Square Expansion will consist of a 41-story multifamily/W Hotel tower, a 31-story office tower and a three-level retail podium, which will be anchored by a luxury theater and chef-driven restaurants. The retail podium and towers will sit above a six-level underground parking garage that is contiguous with more than 4,000 existing subterranean parking spaces.


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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.