(Read more on the debt and equity markets and more on the multifamily market.)
WEYMOUTH, MA-Talk about the price of success–owners of a 68,000-sf medical office building here almost needed to choose between a plum tenant and favorable financing. The conundrum was caused by a clause allowing one occupant to expand the three-story Weymouth Woods Medical Center, a prospect that would typically force owner Campanelli Cos. to settle the 10-year debt early, possibly incurring a costly pre-payment.
“This transaction was challenging,” acknowledges Holliday Fenoglio Fowler LP director Gregory LaBine, but the use of a novel approach has resulted in a $16.5-million first mortgage on the now fully leased property. Allstate Investments LLC offered the terms sought by Campanelli thanks to a mechanism where the existing building and future addition will become separate condominiums should the growth occur.
“It was a creative solution that got our clients the fixed-rate they wanted, and at the end of the day, the lenders are going to be protected,” says LaBine, who arranged the agreement with HFF senior managing director Robert Herron. The tenant expansion aspect is not especially common, LaBine says, but the Boston office previously handled a similar situation at the Dunkin' Donuts distribution facility in Canton, another South Shore community.
“This is why our clients come to us,” says LaBine, concurring that borrowers are often torn between the allure of fixed-rate loans and flexibility. Many owners have been unable to harvest buildings in the hot investment sales climate due to obdurate CMBS terms or stiff pre-payment penalties. “You have to understand the long-range strategy,” when determining how to build the financing vehicle, says LaBine.
Among New England's oldest developers, the Campanelli Cos. is known as a long-term owner, and intends to be one at Weymouth Woods Medical Center, says LaBine. Based in abutting Braintree, the firm's local roots and track record convinced Allstate to make the loan under the unique setup, according to LaBine. “They are outstanding,” he adds of the lender, a division of Allstate Life Insurance Co. The Weymouth Woods Medical Center is slated for completion in early 2008. Tenants include South Shore Orthopedics, SurgiSouth LLC, and Harvard Vanguard Assoc. A 46,000-sf lease to the latter group, as GlobeSt.com reported in July, brought the building to full capacity.
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