Situated on 4.9 acres near the VA Medical Center and St. Joseph's Hospital and Medical Center., the three-story VA building serves as the VA’s regional office where it provides a number of services including a loan center, call center, education center and vocational rehabilitation and employment.

The buyer obtained a $15.1 million credit-tenant lease (CTL) structure bond loan to acquire the property. New York City-based CTL Capital originated the loan, which was then sold off to bond investors, according to Chad O’Connor, a vice president of capital markets with Marcus & Millichap Capital Corp.’s San Diego office.

O’Connor arranged the 13-year loan, which amortizes in 18 years with a fixed interest rate of 4.66%. The loan-to-value is 75%.

“Most CTL bond loans are self-amortizing and run with the term of the lease – in this case 13-year lease and 13-year loan that would be paid off at the end of the lease,” O’Conner explains to GlobeSt.com. “However, the borrower was able to obtain residual value insurance (RVI) on the loan, which lengthens the effective amortization by six years and increases cash flow. When the 13-year term is up, the owner will still owe $6 million on the building.”

O’Connor says the borrower paid 3% of the total loan proceeds to obtain RVI, which is difficult to obtain in today’s economic environment. Moreover, the loan structure saved the borrower 150 basis points compared to a traditional conventional program, which translates into hundreds of thousands of dollars in additional cash flow over the life of the loan, he adds.

“The pricing for these types of loans is totally dependent on the credit,” O’Connor says. “The government is some of the best credit in the market, so borrowers are going to get the best deals out there – the tightest spreads and pricing.”

The Netherlands-based investor was represented by Kulla, Ronnau, Schwab & Chambers P.C.