Commercial real estate investment banking firm George Smith Partners has arranged a $38 million, 12-month forward financing commitment on a partially constructed 50,000 sq. ft. UCLA outpatient medical facility in Santa Monica, Calif. The lender is a major pension fund whose name was not disclosed.
The commitment assures takeout funding upon completion of the project, and locks in a fixed interest rate of 5.67% for 10 years.
The planned completion date of the outpatient oncology medical center project is December 2011. It is pre-leased to the University of California Los Angeles, features special improvements for imaging and radiation services, and offers a robotic, six-floor underground parking garage. The project is seeking LEED Gold certification.
“The borrower wanted to eliminate financing risk and lock in returns, given the market volatility,” said Steven Orchard, senior vice president at Los Angeles-based George Smith Partners, who arranged the financing. “But lenders have recently refused to commit more than three to six months before funding, and premiums for such hedging were prohibitive.”
George Smith Partners was able to secure a loan that takes advantage of the low interest rate environment and controls exposure to inflation during the remaining construction period, according to Orchard.
The deal represents the most significant forward funding commitment the firm has arranged in some time. “It took considerable effort getting everyone comfortable,” explained Gary Mozer, managing director of George Smith Partners.
For example, the lender had to establish confidence in the borrower’s construction process. “Then the lender really keyed in on the tenant’s credit rating,” said Mozer. “Today, even UCLA’s investment-grade AA rating was under the microscope.”
A key challenge included the high loan amount per square foot — $760. “Very few quality medical buildings trade in West LA, and this loan implies a very high loan per square foot ratio, so it is difficult to comp,” said Orchard.
The lender’s comfort level was enhanced by the asset’s unique location, UCLA’s 30-year commitment, special purpose improvements, and significant excess parking income attributable to the developer’s innovative robotic parking system.