LOS ANGELES—An unnamed owner-user has secured a $21.6 million loan for the purchase of an eight-story office building and parking garage. The 10-year fixed-rate loan carries a 90% loan-to-value, which is unusually high and could illustrate the high competition of capital in the market today.

“Typically banks will only provide this type of leverage for SBA deals, therefore we approached the SBA about a 504 loan, and secured a pre-approval allowing for 85% leverage,” Christopher Farlow, a partner at Sequoia Commercial Lending, tells GlobeSt.com. “We then leveraged the SBA's pre-approval with two banks, who were willing to provide more than 75% LTV on a conventional basis. Both of the banks have SBA divisions, so if they couldn't do the deals conventionally at 85%, we still had the SBA 504 as a backup. Once the final underwriting was done, one of the lenders came back and asked what would win the deal. We requested 90% leverage, with a rate that was 2% over the 10-year UST, and a 0.00% loan fee from the bank. The bank agreed and allowed us to lock the rate without a deposit fee.” Farlow and his colleague Brett Twente, a partner at Sequoia Commercial, secured the financing on behalf of the borrower, and declined to name the lender for confidentiality purposes.

The loan has a 25-year amortization period with a step-down prepayment schedule. Farlow has worked with this lender in the past, and has seen them provide leverage has high as 85%; however, he was even surprised by their willingness to reach 90% leverage. When asked if leveraging a loan this high was dangerous, Farlow says, “Yes, there is obviously danger in providing this type of leverage. However, the borrowers provided personal guarantees. Their business is going to occupy the majority of the building, and the businesses are guarantors. The EBITDAR from the businesses covers the proposed debt service several times over and once the building is leased up, the value should increase by more than 25%.”

GlobeSt.com has reported other high leveraged loans, but Farlow says that this is only true for certain lenders and isn't a trend across the capital markets. “These high leverage owner-user deals primarily rely on the guarantors and the cash-flow of the guarantor's businesses,” he explains. “The underwriting is much more complicated and does not translate well to the CMBS or insurance markets. I do not see the larger capital markets trying to chase and or win this business; these are one-off deals.”

The property was formerly home to the Directors Guild of America—Producer Pension and Health Plans. At the time of the sale, the property was 80% vacant; however, the buyer plans to occupy the majority of the building. The property has a five-story parking structure, three-floors of office space and ground floor retail space.