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CHICAGO-Transwestern Realty Finance Partners LLC is providing more than $44 million in mezzanine financing for a mixed-use building here and a portfolio of eight hotels in four states. The financing was made on behalf of its Transwestern Mezzanine Realty Partners II LLC fund, which has $300 million in equity commitments. The fund, when fully committed, will have an estimated value of $500 million, says Jim Mazzarelli, Transwestern Realty Finance Partners managing director.
The firm is providing a $20-million mezzanine loan to a joint venture of locally based GlenStar Properties LLC and Walton Street Capital, also based here. The joint venture acquired the 1.6-million-sf building at 55 E. Monroe St. last year for a reported $239 million, as reported by GlobeSt.com. The top 14 floors of the 50-story building will become residential condominiums, says Mark Witt, senior vice president of Transwestern. The remaining floors of the building, more than one million sf, will remain office and retail space. "I think having the residential condominiums is a perfect complement to the office, retail and parking portions," Witt says. "We like having the multi-use nature of the building."
The East Loop area is having "more of a residential feel" with Millennium Park and the view of the lake, Mazzarelli says. "That residential component we think makes it that much more of an attractive office investment," he says. The office and retail space is nearly 90% occupied, Witt says. Major tenants include Turner Construction, the US General Services Administration, law firm Goldberg Kohn and engineering firm Sargent & Lundy, which is the largest tenant in the building. The asking lease rate for class A office buildings in the East Loop submarket is $27.81, according to Grubb & Ellis' second quarter market report.
The mezzanine loan is for the office and retail portion of the building and not for the portion being redeveloped into condominiums, Mazzarelli says. "They have two different business plans that have different timeframes attached to them," he says. "They wanted different financing in place for those two separate components." The financing for the office and retail portion will be used for tenant improvement packages, "modest lobby renovations and there has been a very significant parking renovation," Witt says. There are 868 parking spaces that have been resurfaced, the walls have been repainted and new lighting has been installed. An estimate for the cost of renovating either portion of the building was not available.
Transwestern is also providing nearly $24.4 million for a mezzanine loan to Morgan Stanley Real Estate Fund V US for the acquisition of eight luxury hotels in four states. The portfolio includes Arizona Biltmore in Phoenix; Grand Wailea in Maui, HI; Doral Resort in Miami; La Quinta in Palm Springs, CA; JW Marriott Desert Ridge Hotel in Phoenix; Claremont in Berkeley, CA; and the JW Marriott Great Lakes adjoined to the Ritz-Carlton Great Lakes in Orlando. The investment was attractive because the luxury hotel industry "has some pretty high barriers to entry" such as the cost to build the hotels and the lead time for delivering the buildings, Mazzarelli says.
Both loans are for the Transwestern Mezzanine Realty Partners II LLC. "Our strategy is US-based and opportunistic," Mazzarelli says. The fund invests in office, multifamily, retail, industrial and hotels. "Because mezzanine [financing] is so opportunistic we do not have a geographic focus or a specific property-type focus," he says. Although there is not a focus on a specific type of property, "our orientation tends more the office and residential. But, we have got a long expertise in the hotel arena so we do a fair amount in the full-service hospitality segment," Mazzarelli adds. The target hold time is three to five years but has been averaging between 24 to 30 months. The fund currently has about 80% of its equity committed. "We are tracking about our target [which is] mid-teens returns for the fund," he says.
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