LOS ANGELES—Continental Development, the largest office landlord in the El Segundo market, has secured a $26 million loan through a life insurance company to refinance two office buildings totaling 184,540 square feet at Continental Park, a 2.7-million-square-foot office park in El Segundo, CA. The borrower sought a life insurance company after having an unhappy experience with its former CMBS lender. The loan carries a 15-year term with a 25-year amortization schedule.

“Continental Development had done this deal as a CMBS loan 10 years prior, and they did not enjoy the servicing aspect of the loan,” Michael T. Elmore, EVP and managing director of NorthMarq Capital, tells GlobeSt.com. “They have never defaulted in the history of the company; they are a huge landlord. During the downturn from 2008 to 2010, they never missed a payment and they performed as they were suppose to, but the harassment they got from the servicing agent made them prefer not to do a CMBS loan again. In addition to that, they were worried about interest rates, so they had us focus on life insurance companies.” Elmore secured the funds on behalf of the borrower, along with his NorthMarq Capital colleague, VP Blake Melstrom.

The new loan structure worked out ideally for the borrower. It has a six-month forward commitment and a 4.25% fixed rate term, which was locked in at 190 basis points of the ten-year treasury. “The only negative for them, and they were very willing to do this, is that they had to do a $2 million pay out to rebalance the loan,” says Elmore. The NorthMarq team secured nine quotes from life insurance companies, and three of the quotes were extremely competitive. In the end Nationwide Insurance won, and funded the loan. 

Although this borrower was unhappy with its CMBS experience, Elmore says that it isn't necessarily a trend in the market. The lender really depends on the borrower's needs and business plan. “CMBS is really ramping up, as expected, and they will over the next two years continue being more aggressive and take more market share,” says Elmore. “We are also finding that a lot of people want to hedge any refinancing risk or interest rate risk, and the only way to do a forward commitment on the commercial side is to do it with a life company. If you go with a life company, you are doing a more conservative loan structure, better economic terms and better servicing on the loan. There is a profile of people that would prefer to do that, but that would be a more conservative outlook of a borrower that wants less proceeds but better economic terms.”

NorthMarq has made recent headlines with a handful of interesting loans. In January, Elmore secured a $3-million cash-out refinance loan with 10-years interest only for a retail property. It was Elmore's third time refinancing that particular asset.