LOS ANGELES—Steaven Jones Development Co. has secured two loans totaling $21.9 million to refinance two creative office campuses in Marina del Rey. The two campuses are known as the MediaWorks campuses. The two loans were funded by a life insurance company and will pay off existing debt and finance future improvements to the property.

The financing package includes a 25-year fixed-rate loan with a 4% interest rate and 30 years amortization. This rate was locked in at the time of application rather than when the loan was approved. Additionally, the loan included multiple assumption rights, which, if the property is sold, will allow the buyer to assume the loan or will allow the borrower to go back for additional funding without originating a new loan or triggering a pre-payment penalty.

“The process itself was relatively painless,” Mike Davis, VP of PSRS, tells GlobeSt.com. “The main challenge with this transaction was getting the life insurance companies comfortable with the 'creative office' asset type.  Many life insurers are based in the Midwest or other areas of the country where this type of office building, an old industrial property that was converted to creative office use, is not prevalent or doesn't exist at all. The idea that a tech company would want a space with exposed ceilings, concrete floors and a lot of shared collaborative space and would pay a premium for the space can be a foreign concept to life insurers. It took a lot of education and data to get them comfortable and help them understand that this is a very strong, viable asset class here in Southern California. Now that they have the information and can see the real world value of these properties here, I think the door is open for more creative office transactions in the future.” Davis secured the funds on behalf of the borrower.

According to Davis, this loan says a lot about current trends in the capital markets, including the fact the life insurance companies are more open to creative office. However, he said that the real story here is the cheap cost of long-term financing. “I think the bigger takeaway is that long term financing is still very cheap,” he says. “The ability to secure a fixed rate loan for 25 years at near 4% is amazing.  Part of this is due to the fact the yield curve above the 10-year treasury is relatively shallow. In this particular transaction, the difference between a 10-year fixed-rate loan and a 25-year fixed-rate loan was only 40 basis points.  So, for only a slight premium to the rate, the borrower was able to secure an additional 15 years of term and kept their long term flexibility intact with the assumption and additional funding rights that were negotiated into their deal.”

The MediaWorks campus sits on 4.5 acres and has 120,000 square feet of creative office space, which serves the tech, media and entertainment companies in the area. The campus features outdoor space, onsite parking, while the interior units offer high ceilings, skylights and operable windows.

Borrowers are finding ways to protect against potentially rising interest rates. The owner of an apartment complex in Marina del Rey made a similar move in January, securing a $36-million non-recourse bridge-to-perm loan to fund the renovation of Villa Del Mar Apartment Homes. 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.