LOS ANGELES—Far West Management has secured a $36-million non-recourse bridge-to-perm loan to fund the renovation of Villa Del Mar Apartment Homes, a 196-unit, four-building multifamily complex with 209 boat slips on the Marina Del Rey waterfront. The property is located on a leasehold, and the renovation is part of a required ground lease extension with the County of Los Angeles. The unique loan structure allows the sponsor to both pay for the renovation cost in full and pay off the loan over a 8-year period without the risk of rising interest rates.

“The borrower was concerned that rates would go up and didn't want to take that chance,” Steve Bram, principal and managing director at George Smith Partners, tells GlobeSt.com. Bram secured the funds on behalf of the borrower along with his George Smith Partners colleague SVP David Pascale. Far West came to George Smith Partners because it had only 10 years left on its ground lease, and Los Angeles County required a major renovation to extend the lease. “Most of the owners of the property are either older investors or trusts, and as a result the ownership entity was looking to minimize the downside risk,” adds Bram. “They had to spend $30 million to do a rehab, and they didn't want the risk that after they finished the rehab, they would have to refinance the property at a higher interest rate.” Before taking on the loan, the borrower had no debt on the property.

The non-recourse bridge-to-perm loan is a two-year construction loan with a fixed rate that rolls over into an 8-year fixed-rate loan after the completion of construction. “They didn't want to go into the marketplace in two years with a construction or bridge loan and have to potentially find that rates are higher,” Bram explains. “This is the least risky course of action. The rate is set now; so, they have no flexibility, but also no risk.” The loan was funded by an unnamed Asian entity, which had never before funded a loan in the US.

The ground lease and required construction made securing these funds all the more difficult. “We had a very complicated ground lease extension structure that the lender needed to understand,” says Bram. “The ground lease was extended contingent on the renovation being done. If for some reason the renovation wasn't completed, the ground lease would be at risk, and the lender would have a loan with a ground lease term that was too short.” Construction on the renovation project began a few weeks ago, and will be completed in mid-2016.

Marina Del Rey, of course, has many development projects underway. Last year, GlobeSt.com reported that California Landmark Group had broken ground on a $30-million live/work loft project called R3 Lofts. Located at 4091 Redwood Avenue in the marina arts district, the mixed-use project will have 67 apartment units and 7,525 square feet of creative office space all in one building. The property is expected to open in the spring of 2016.