Borrowers Hurry to Lock-In Financing

LOS ANGELES—Borrowers are hurrying to secure long-term financing before a potential rise in interest rates. It is an interesting trend from the other side of the table, considering the ongoing narrative about the ample capital chasing deals and the potential risk of lenders ignoring fundamentals. In this exclusive story, GlobeSt.com reports that 2020 Acquisitions, the owner of Grandview ParkE creative office property, which is under renovation and will have no cash flow for 13 months, has secured an 11-year non-recourse loan for $24.5 million at a 4.65% rate rather than going the bridge-financing route.

"Our client sought to maximize proceeds knowing that his all-in cost basis and stabilized cap rate would exceed that of similar creative office assets due to the superior quality post-renovation," Ben Grossman, managing director of Meridian Capital Group, tells GlobeSt.com. "The deal is representative of the ongoing trend of borrowers seeking to lock in long-term financing while rates remain close to historic lows. In this scenario, we were able to identify a lender that would provide an advantageous bridge-to-permanent structure to eliminate interest rate risk for the takeout loan at stabilization." Grossman secured the funding on behalf of the borrower.

Located at 1011-1015 Grandview Avenue in the Glendale/Burbank market, the 107,000-square-foot property is undergoing a major renovation and will be a high-quality class-A facility when complete. Bunim-Murray Productions has already signed a lease for the space when renovations are completed. Although there won't be any cash flow at the property for 13 months, the borrower was able to secured an 85% LTV loan to finance the value-add improvements.

The cash flow did cause some issues and limited lender competition. "Creative office, as a sub-category, is attractive to lenders but the majority of the capital sources we approached still wanted to constrain leverage despite the excellent location and business plan," says Grossman. "The largest hurdle we had to overcome was that the property would not produce any cash flow for the 13 months following the acquisition and our client did not want to pay the higher costs of traditional bridge financing."