INSIDE THE DEAL: CBRE Arranges $78M Freddie Mac Loan for Trophy High-Rise
- Jan 20, 2009
By Keat Foong, Executive Editor Los Angeles— CB Richard Ellis Capital Markets provided a $78.3 million loan for a trophy high-rise asset, in what the company says is one of the largest multi-family transactions of the year in Southern California. The sponsor, The Kor Group, wanted to recapitalize its equity on the property. And it also wanted to initiate renovations to bring up the building rents substantially. The challenge was that the borrower was seeking a high-leverage loan, according to Brian Eisendrath, senior vice president, Debt and Equity, at CBRE Capital Markets. The Kor Group also wanted a fixed-rate loan that is enough to cover about $15,000/unit to renovate the 322-unit building with ground-floor retail. Pegasus Apartments, formerly the headquarters of Standard Oil, is located at 612 S. Flower Street in Downtown Los Angeles. Considered a “trophy asset,” the owner, The Kor Group, had converted the former office building into 322 market rate rental units about eight years ago, says CBRE Capital Markets, and it has since become one of the premier apartment buildings in Downtown LA. CBRE Capital Market’s Eisendrath, Troy Tegeler and Bethany Bailey arranged a fixed-rate loan at a 5.45 percent rate on a five-year interest-only term on behalf of The KOR Group. Loan-to-Cost was 78 percent. Freddie Mac provided the funding. One of the largest Freddie Mac seller servicers with over $1.4 billion funded through the first half of 2008, CBRE Capital Markets was able to size the loan based on a 1.10x interest-only debt coverage ratio and offer the sponsor flexibility on the back end by allowing the loan to be paid off at par in years four and five. Additionally, the $5 million renovation budget was funded and disbursed to the sponsor at closing resulting in an increased IRR to investors. The loan was committed and rate locked in February 2008 with a six-month forward component.The Pegasus is one of the earliest buildings to be redeveloped through the City of Los Angeles Adaptive Reuse Ordinance. To keep up with the market, Kor will be renovating the common areas, the exterior, and the units over the next 36 months. Kor believes that it can achieve a significant increase in rents by renovating the asset.