For the Right Borrowers, Capital Is Abundant

The 566-unit property is located at the corner of Figueroa Street and Cesar Chavez Avenue.

LOS ANGELES—The owner of the Orsini II , a 566-unit class-A multifamily property in Downtown Los Angeles, has secured a $115 million loan to refinance the property. The borrower was able to secure the funds with relative ease, considering we have seen a tightening in the debt markets this year, through an undisclosed lender, thanks to the high quality and location of the asset. While this specific loan is an anomaly, “standing apart from trends in the market,” according to Gary Tenzer , a principal and managing director at George Smith Partners , it does show the continued strength of the multifamily market compared to other property types. “If you are looking at multifamily in Downtown L.A., everyone knows that multifamily values have skyrocketed, and so there is no question that you could refinance without putting cash in, even though lenders are a little more conservative than they were 10 years ago when original loans were made, there is enough appreciation in multifamily that there is enough room to refinance,” Tenzer tells GlobeSt.com. “However, values on office buildings haven’t changed that much in 10 years, and NOI growth has not moved that much on office buildings. Obviously, it is market determined and it is local, but in general, office rents have not grown at the same rate as multifamily, so values haven’t grown as fast. Since lending is more conservative now, anything that is not multifamily may not be able to get enough financing proceeds from a refinance.” Tenzer secured the funds on behalf of the borrower. While this particular asset is perfect fodder for any lending source—since few lenders eschew institutional assets in A locations—there are still plenty of lenders willing to refinance lower quality multifamily assets. “This is as high quality of institutional real estate as you can get, but lenders aren’t necessarily looking to only do pristine-quality properties,” says Tenzer. “Although there are lenders that will only do the cream of the crop, there are plenty of lenders that will do B properties in B locations. There is plenty of capital out there for that, and even CMBS is back.” The interest-only, floating-rate loan has a 10-year term, 57% loan-to-value and is priced over LIBOR. The borrower’s two main objectives were getting a low rate and interest only, but could likely have gotten more proceeds had it been willing to go with a higher rate. “Obviously, he wanted proceeds, but he could have gotten more money at a higher rate, so it was really a question of how much do you borrow,” adds Tenzer. “On a loan-to value-basis, it is relatively conservative.” To accomplish the borrower’s wish list, Tenzer took the deal to a select group of lenders rather than taking it to market to create competition. “We did not take it broadly to lender, and I was very targeted with who I went to on this to create competition between multiple sources,” he explains. “This was the strongest of the proposals.” The property is located at the corner of Figueroa Street and Cesar Chavez Avenue, and has 20,448 square feet of ground-floor retail. It is 98% occupied.