Borrowers Love Early Rate Lock Programs

LOS ANGELES—The unnamed owners of Continental Park Terrace have secured a $41 million loan to refinance existing first mortgage obtained in 2006. The borrower used an early rate lock program to secure a low 3.5% long-term interest rate in the spring for funding that closed in August. Due to the low interest-rate environment, many borrowers have been utilizing early rate lock programs to secure low interest rates without paying a defeasance cost.  

“We are in a very attractive interest rate environment, and it is not unusual for many of our clients to want to refinance their existing debt and even pay a defeasance penalty associated with it, knowing that they are going to lock into a new long-term fixed rate deal,” David Sonnenblick, a principal at Sonnenblick-Eichner Co., tells GlobeSt.com. “We were able to find a lender with a forward rate lock commitment, which allowed us to lock a rate last spring for funding in August. As a result, the borrower was able to mitigate the cost associated with a prepayment. They really didn't pull out a lot of equity, as they are a very conservative borrower, and they really just refinanced the existing debt, and they pulled out some minimum equity for distribution or to hold in the bank for future capital requirements.” Sonnenblick secured the funds on behalf of the borrower.

Located inside the 3-million-square-foot Continental Park, Continental Park Terrace is a 200,000-square-foot office building with a tenant mix that includes Konami Digital Entertainment, Morgan Stanley and Paul Martin's American Grill. The class-A property is located in the Manhattan Beach-El Segundo market, which has become a popular stomping ground for creative office development. As a result, lenders were eager to win the deal. “We saw a lot of lender competition. There is a lot of capital in the market, and this is a good quality asset,” says Sonnenblick.

The 15-year loan has a 3.5% fixed rate, and was secured through a life insurance company. Continental Development also recently refinanced two other buildings within the park, obtaining a $26 million loan. The borrower also secured the loan through a life insurance company. Obtained in April, the 15-year loan has a 4.25% interest rate.