Life Co. Grants Watt Plaza $220M

CENTURY CITY, CA—The Watt Cos. has secured a $220 million loan to refinance Watt Plaza, a 23-story, 903,000-square-foot office campus in Century City. Prudential Mortgage Capital Co. funded the loan, which has a 15-year term and a fixed rate.

Prudential was attracted to the opportunity because of both the high-quality sponsor and the quality of the asset, which is located in one of the countries top-tier office markets. Although Prudential declined to comment on the transaction or disclose the terms of the loan, the company did say in a statement that the property's location—namely it's proximity to upscale neighborhoods, retail centers and highways—made this an appealing opportunity. The property is LEED Platinum certified and underwent a massive $42 million renovation in 2003.

The loan, however, is also indicative of the increasing activity from life companies. “This is a harbinger of what is happening today with the life insurance companies,” Gary M. Tenzer, a principal and managing director at George Smith Partners and a market expert who was not involved in this transaction, tells GlobeSt.com. “Life companies have gotten more aggressive, their pricing is moderately below CMBS—not significantly, but somewhat—and they have a lot more flexibility in terms of prepayment penalties and documents. For the most part, life insurance companies are portfolio loans. A life insurance company holds them on book, so you are not dealing with a third-party servicer.”

Tenzer adds that much of the increased activity from the life companies is from borrowers looking for alternatives to CMBS. “There are a lot of borrowers that have had problems with CMBS lenders that have taken an oath that they will never take another CMBS loan because the documents are so difficult and it is so inflexible. When deals got into trouble, if the borrower could even find somebody to talk to, be it the servicer or special servicer, they were treated very harshly,” says Tenzer. “Borrowers, as long as they have options, have very long memories. As long as a borrower is not looking for the highest leverage that they can get—and not all can or want to—then the life companies are going after that business, and winning it.”

Although little information is available about the Watt Plaza deal, and we do not know if the borrower previously had a CMBS loan, Continental Development, another office owner, recently moved from CMBS to a life insurance company to refinance two office buildings at Continental Park. The borrower was very unhappy with its CMBS lender, and decided to pay a prepayment penalty to switch.