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December 27, 2012

$78M Refinancing Deal Secured for M-U West Hollywood Property

By Barbra Murray, Contributing Editor

 For the refinancing of the right properties in the right locations, lenders made loans left and right this year, and The Sunset in West Hollywood, Calif., is among the assets to benefit from the favorable financing opportunities. With the assistance of commercial real estate and capital markets services provider HFF, Broadreach Capital Partners landed a $78 million loan to refinance existing debt on the 178,000-square-foot mixed-use destination along the Sunset Strip.

The Sunset might have been developed 50 years ago but, as is hardly uncommon in Hollywood, it has benefited from a complete makeover. In 2001 the property at 8560-8580 Sunset Blvd., then known as Sunset Millennium, underwent a transformation with the full redevelopment of its 71,100-square-foot office building, followed in 2002 by the addition of a 106,800-square-foot retail and office plaza and a 937-space parking facility. And just months after Broadreach completed the approximately $100 million acquisition of the multi-structure complex from Apollo Real Estate Advisors in early 2007, the real estate private equity firm further upgraded the complex through a renovation and repositioning program.

AIG Asset Management Group provided the financing, which came in the form of a three-year, floating-rate loan with the option for two one-year extensions. It wasn’t exactly a big risk. The Sunset is presently 95 percent occupied, and the West Hollywood market is one of the strongest in Los Angeles County. At mid-year, the office vacancy was 6.6 percent, according to statistics from commercial real estate information and analytic services provider CoStar, and in the third quarter the total retail vacancy was just 4.2 percent.

In the country’s top markets, it’s been a big year for refinancing–in volume and in size–and the fourth quarter was no exception. In Manhattan, Vornado Realty Trust refinanced the 2.1 million-square-foot office high-rise at 1290 Avenue of the Americas to the tune of $950 million, leaving the REIT with net proceeds of $522 million after the repayment of the existing loan. Thor Equities obtained a $365 million package for the 1,639-room Palmer House Hilton in Chicago. In Washington, D.C., Republic Properties secured $243 million for the 510,000-square-foot Portals III trophy office building and utilized the bridge loan to refinance a previous loan and fund future leasing costs.

It’s unclear what 2013 will bring. “Mortgage originations will be $1.7 trillion in 2012, falling to $1.4 trillion in 2013 as rates rise,” per a third quarter report by the Mortgage Bankers Association. “This decrease will be driven by a steady decline in refinance originations as rates increase over 4 percent since many borrowers have already refinanced into mortgages in the 3.5 to 4 percent range.” Later in the report, however, MBA noted, “Recent data on refinance applications show that borrowers are still applying to refinance their current loans, and we have raised our originations estimate for the fourth quarter of 2012 and for the first quarter of 2013.”

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