SAN JOSE, CA-Several refinancing transactions are in the works for Marcus & Millichap Capital Corp. in the Northern California market, including a medical-office facility, an apartment project and a retail asset, suggesting that the market is ripe for refinancing activity. The broker’s recent refinancing arrangement of $49.73 million for two Northern California apartment complexes—a 263-unit property in San Jose, CA, for $31.56 million and a 263-unit apartment property in Hayward, CA, for $18.17 million—could be just the tip of the iceberg.
According to a company spokesperson, “The market is extremely tight and cap rates are very aggressive for both stabilized assets and for value-add properties. Owners with loans coming due in the next two years or less are looking to refi now and are realizing that if rates move up more than 30 or 40 bps, it is well worth paying the prepay penalty to refi now.”
Rents continue to increase in the Northern California markets, and vacancy rates are extremely low, the source continues. “We are seeing 3% to 6% rent growth for just average product, and the rents for class-A properties are at or above 2007 levels.”
Jake Roberts and Anita Paryani, VPs of capital markets in M&M’s West Los Angeles office, arranged the two recent refinancing agreements for the Northern California properties. “We are seeing a number of clients move to refinance assets—even with small prepay penalties—to lock in lower, long-term fixed-rate loans,” says Roberts. “One year ago, we looked at refinancing these assets for our client, and long-term debt would have required the borrower to put in nearly $1 million to complete the refinancing. This year, at the end of the day, our client was able to cash out.”
Roberts tells GlobeSt.com that the owner is a private family that owns multiple assets throughout the Bay Area and manages and operates a portfolio of multifamily assets it has acquired since the late 1970s. There are no plans for major renovations since the owner has already done minor renovations and spends significant capital keeping the properties in immaculate condition, he adds. The San Jose property was built in 1970, and the Hayward property was built in 1991.
“The property owner already had a full-leverage loan in place and didn’t want to contribute cash to the refinance,” says Roberts. “The goal was to take advantage of the market’s lower interest rates. MMCC structured a loan that enabled the borrower to utilize the lower interest rate on a seven-year term and at closing and receive cash-out proceeds of nearly $1 million.”
The loan is fixed at 4.22% for seven years, amortized over 30 years, and the loan-to-value is 75%.
“MMCC worked through every lending option available, including capital from life companies, banks and agency debt,” says Paryani. “In the end, we offered aggressive five-year, fixed-rate, nonrecourse debt that allowed for a larger amount of cash out, but the borrower decided to take a seven-year option with an agency, just to have a longer fixed-rate term.”
This is not the only transaction M&M has recently completed in the Northern California market. As GlobeSt.com previously reported, Institutional Property Advisors, a brokerage division of M&M, recently arranged the sale of 360 Residences, a 213-unit luxury residential tower in San Jose, CA, for $118 million to an investment partnership led by Capri Capital and involving LACERA, according to an unidentified source not involved in the deal. The sales price represents approximately $554,000 per unit and marks the largest single asset multifamily sale to close in the Bay Area year-to-date, according to IPA.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
