Office Leads Asset Classes Seeking New Finance

SUNNYVALE, CA—Silicon Valley is of course, Silicon Valley, and when combined with historically low interest rates, the demand remains for various asset types. That demand is exemplified in a recent long-term financing for $67.75 million for three separate commercial properties: two office buildings and one big-box retail center. Newmark Realty Capital obtained the financing.

“The priority for lenders might be towards multifamily and industrial, however the most experienced lenders will finance projects if they are confident in their underwriting of retail and office,” Mike Heagerty, principal and CFO with Newmark Realty Capital, tells GlobeSt.com. “Office and retail will selectively have a niche but are increasingly challenged versus the other property types. The drop off of retail with issues surrounding major tenants may make certain properties very difficult to finance, however it does not necessarily mean that solid retail locations cannot be identified, underwritten and financed. A competitive market for the financing can be created for those best locations with the proper tenant mix and healthy local demographics.”

The three transactions include properties in Sunnyvale, San Jose and San Mateo, CA.

Newmark secured $35.8 million in financing for the Sunnyvale office campus, Oakmead Terrace, originally built in 1980, encompassing four buildings featuring 143,343 square feet of rentable office space. Principal Eric Von Berg of Newmark's San Francisco office arranged the five-year loan with an interest-only base period with 30-year amortization and a flexible prepay component with non-recourse terms. Newmark will service the loan.

Newmark arranged financing in the amount of $19.2 million secured by a 134,000-square-foot 100% leased retail center anchored by Home Depot on a ground lease in San Jose. Principals Mitch Zeemont, Jeff Wilcox and Robert Slatt, associate vice president Erinn Cooke and associate Darija Walker in Newmark's San Francisco office arranged the non-recourse 10-year fixed-rate term loan with 30-year amortization. There were no reserves or impounds required with one of Newmark's insurance company relationships. Newmark will service the loan.

Newmark arranged financing in the amount of $12.75 million secured by a 62,661-square-foot multi-tenant office property, De Ritz, in San Mateo, CA. The 100% occupied four-story class-B office building is located blocks away from the Highway 92 and sits directly across the El Camino Real from a Safeway-anchored shopping center, positioned between numerous single-tenant office and retail buildings. Wilcox, Zeemont and Walker arranged the non-recourse 10-year term, 25-year amortization with one of Newmark's correspondent relationships. Newmark will service the loan.

So far in 2017, Newmark has structured new debt solutions for 13 unique properties in the region totaling $157 million for assets in a variety of classes. This wave of transactions in 2017 is dominated in asset class by eight office properties but also includes three retail properties, two industrial properties and one self-storage property.

“Each of these transactions reflects broader trends in the current marketplace regarding commercial real estate finance,” said Heagerty. “Interest rates remain at historic lows and capital is still readily available for owners looking at new financial structures to meet broader investment goals. These strategic refinancings typically position the property for long-term stability, sometimes extracting appreciated value for a variety of potential uses, or positions the property for sale, transfer to new ownership structure or renovation and improvement.”