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LOS ANGELES-The new partnership of the Los Angeles-based Kor Group and Newport Beach, CA-based Buchanan Street Partners that owns the 322-unit Pegasus Apartments in Downtown L.A. secured the $78.3 million in debt for the property through CBRE Capital Markets, the local office of CBRE Capital Markets reports. The deal, one of the largest multifamily transactions of the year in Southern California, provided 78% loan-to-cost financing of the Pegasus, which is at 612 S. Flower St.

According to CBRE Capital Markets, the newly formed joint venture of Kor and Buchanan, called BSP/KOR, sought a high-leverage fixed-rate loan to finance plans to spend approximately $15,000 per unit to renovate the building which includes ground-floor retail. BSP/KOR acquired the Pegasus from a KOR/Lubert-Adler partnership.

Brian Eisendrath, Troy Tegeler and Bethany Bailey of CBRE Capital Markets arranged the $78.3 million fixed loan at a 5.45% rate on a five-year interest only term on behalf of the owner, with Freddie Mac providing the funding. CBRE Capital Markets is one of the top Freddie Mac seller-servicers, with more than $1.4 billion funded through the first half of 2008.

CBRE Capital Markets was able to size the loan based on a 1.1 interest-only debt coverage ratio and offer the sponsor flexibility on the back end by allowing the loan to be paid off at par in years four and five. Additionally, a $5 million renovation budget was funded and disbursed to the sponsor at closing, resulting in an increased IRR to investors. The loan was committed and rate locked in February 2008 with a six-month forward component.

The Pegasus, a former office building, is one of the earliest buildings to be redeveloped through the City of Los Angeles Adaptive Reuse Ordinance. To keep up with the market, BSP/KOR will be renovating the common areas, the exterior and the units over the next 36 months.

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