Starwood Co-Originates $238M Loan; More to Come

(Mark Your Calendars. The 11th Annual RealShare Washington, DC convenes at the Ritz Carlton, June 1. Click here  for more information.)

ROSSLYN, VA-It has been a busy seven days for Starwood Property Trust. Last week the REIT originated a $170-million first mortgage loan on two class B office buildings in the SoHo district of Midtown Manhattan. This week it co-originated a $238-million package for a Monday Properties partnership portfolio here that may well be among the most complicated deals the REIT ever structured.

Other local deals are coming up as well, Chris Tokarski, Starwood’s chief credit officer and managing director, tells GlobeSt.com. “We’re working on two more originations in the DC area,” he says, “one for $100 million, another for $60 million.” Tokarski declined to provide more details other than to say the transactions are in the hotel and retail sectors. “We view this as a strong market with long-term viability so we are excited about the origination opportunities.”

That said, Starwood executives believe its recent co-origination for Monday Properties may well wind up in a class of its own. “This was a very complicated transaction,” Boyd Fellows, president and director, tells GlobeSt.com. “We’re used to dealing with complicated properties in terms of changing ownership or high vacancies, but the deal structures are usually more straightforward.”

The facility consists of a $125-million first-mortgage loan, a $40-million senior mezzanine loan, and $73 million in junior mezz. It is this last portion that Starwood funded, and it is composed of $45 million that will be funded initially, followed by a $28-million future-funding component, which will be used for capital and tenant improvements and leasing commissions.

Bank of America provided the $125 million, Tokarski says. A life company that did not want to be identified provided the $40-million senior mezz piece. It was the Starwood funding structure that complicated the overall deal—but made it worthwhile for the sponsor. “It’s more expensive money than what BofA is providing, but the borrower doesn’t have to pay for it until it’s needed,” he notes.

Monday is using some of the proceeds to pay off a term loan put in place in 2007, president Anthony Westreich tells GlobeSt.com. The forward-looking capital will provide important support to its future funding requirements for its accretive lease-up activities. “We’ve used this structure before, but it’s definitely much less available in today’s market than before the crash. We like the flexibility it provides, and that in part is what prompted us ultimately to choose them as our lender.”

The collateral for the loan is a six-property, class B+/B office portfolio totaling over one million square feet owned by a partnership between Monday and US Real Estate Opportunities I LP, an investment fund managed by Goldman Sachs Group.

As it happens, Starwood was very familiar with the portfolio. It had a $180-million mezz piece related to it when the portfolio was jointly owned by Monday and Lehman Bros. “When they went to refinance we knew the portfolio well and were able to compete for it and win,” Fellows says.