DTLA Owner Refinances Portfolio Before Rates Climb

Investors are reacting to the rising interest rate environment by refinancing existing loans and locking in long-term debt. ASB Real Estate Investments has secured a $95 million loan to refinance the WaterMarke Tower, a 35-story residential tower in Downtown Los Angeles. The refinancing is part of the firm’s strategy to lock in fixed-rate long-term debt before rates continue to climb this year.

“The rising interest rate environment has been an important backdrop to our interest in managing the portfolio’s interest rate risk through fixed-rate executions for a number of years,” David Quigley, managing director and chief investment officer at ASB, tells GlobeSt.com. “With a rising interest rate environment, we believe that locking in 10-year financing at sub 4% is a very attractive execution.”

For the WaterMarke property, ASB secured a ten-year, non-recourse, floating-rate loan through German-based commercial bank Helaba. The loan has an interest rate equal to one-month LIBOR-plus a spread of 1.30%. While the firm has a floating rate, it will be swapped with a fixed rate of 3.957%. “We were able to lock in long-term financing at an attractive rate on a high-quality long-term hold asset—one of our top performing multifamily assets, and it helps achieve overall long-term capital structure and investment objectives, taking advantage of favorable rates,” adds Quigley.

The WaterMarke asset is a quality, class-A property, and ASB is a well-known sponsor, so it is no surprise that the firm saw tremendous interest in the deal. “Due to the high quality nature of the investment, there was strong interest from a diverse group of lenders,” says Quigley. “Helaba distinguished themselves with a 10-year floating rate structure that was ultimately swapped, strong proceeds, an attractive spread and ultimately a very constructive orientation around working with our deal team on qualitative deal terms.” This is ASB’s first deal with the German bank, but Quigley says that it looks forward to growing the relationship.

The WaterMarke is the latest in several refinancing deals ASB closed in late 2018, as well as several dispositions. It says these deals are part of a strategy to lock in financing before rates continue to rise. It is planning to continue to refinance its assets through the first quarter of the year. “ASB has recently completed a number of financings aimed at right-sizing portfolio leverage after debt was paid down in connection with a number of first quarter 2018 dispositions,” says Quigley. “During the first quarter 2019, we expect to do approximately another $100 million in financing.  The terms will be shorter, but the loan is also expected to be originated as floating and swapped to fixed.”