Chesapeake Lands $33M in Acquisition Debt

The Norwalk property is Pacific Pointe, for which Highland sourced a life company that funded the Pacific Pointe acquisition via a $14.6 million bridge loan. The approximately 70% loan-to-cost debt features a floating rate that the borrower elected to swap into a fixed rate at closing; the rate on the initial funding is just over 6%. Chesapeake bought the apartment complex, which is at 13811 Shoemaker Ave. in Norwalk, from Los Angeles-based Madonna Properties for slightly more than $18 million.

Mike Guterman of Highland Realty Capital's Los Angeles office comments that although the lending environment remains challenging for bridge financing, "There is still demand from lenders for cash-flowing assets in infill locations." Guterman adds that, "The Pacific Pointe apartment complex was roughly 90% occupied at closing, and the borrower's proforma rents were reasonable." The senior loan includes $2.15 million in holdbacks for interior and exterior renovations; Chesapeake has planned a series of improvements that will lead to modest rent increases.

In the Reno deal, Highland Realty placed $18 million in floating-rate bridge financing for Chesapeake's acquisition of the leasehold interest in the Brookside Industrial Portfolio. The cost of the financing at closing was in the low 5% range.

The Brookside property consists of three newly-built multi-tenant flex-industrial buildings that were a combined 43% occupied at closing; the buildings are within an industrial park that is ground leased from a Nevada governmental agency.

Chesapeake's plan is to lease up the vacant space and sell the assets within 36 months. "There were many challenges with this transaction, including below break-even debt coverage at closing and low occupancy," Guterman says. "By structuring a debt service reserve as well as an earnout conditioned on a certain debt coverage hurdle, we were able to mitigate the lender's concerns."

Chesapeake Real Estate Value Investors, a fund managed by Legg Mason, invests in real estate transactions where the firm can add value through capital improvements and/or leasing. To-date Chesapeake has invested in multifamily, retail, industrial, and hospitality transactions located throughout the US.