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April 02, 2018 at 06:27 PM
Our sister publication, GlobeSt.com, covers one of the engines that keeps life and annuity issuers running: the commercial real estate market. Life insurers participate in that market by renting space, owning buildings, lending directly to development companies, investing in mortgage-backed securities, and participating in mortgage-related derivatives markets.
Kelsi Maree Borland recently talked to players in a corner of California commercial real estate market. Here is a version of an article that ran on GlobeSt.com March 23.
“Today’s market is nearly unrecognizable from a year ago,” John Marshall and Joe Giordani, VPs at Northmarq Capital, say about the bridge lending market. The duo recently funded a $33.9 million bridge loan for an office redevelopment project of 1, 3, 5, 7, 9 Corporate Park in Irvine, California, on behalf of borrower Kelemen Caamano Investments.
The deal received interest from life insurance companies and pension funds to debt funds and banks as well as non-bank lenders, which the borrower ultimately chose for the deal.
(Related: 5 Big Questions About Life Insurance for 2018)
Marshall and Giordani say that the bridge lending market has taken off in the last 18 months, and office redevelopment projects are an attractive deal for the group. We sat down with Marshall and Giordani to talk about the demand for office redevelopment projects, this recent deal, and how the bridge lending market has changed.
GlobeSt.com: You were able to identify several lending groups for this project. In general, what is lender demand/appetite like for redevelopment office projects in Orange County?
Joe Giordani: Even with rising interest rates, there is so much global capital chasing yield that bridge pricing and liquidity has become extremely aggressive in the past 18 months. Today’s market is nearly unrecognizable from a year ago, with a number of new bridge lenders that have popped up. All of these lenders need to write loans, and don’t have the luxury of waiting.
Marshall: Both lenders and investors continue to go long on diversified coastal office markets with a high quality of life and an educated workforce, assuming that employee lifestyle preferences and low unemployment will continue to drive demand. Bridge lenders of all stripes feel good about downside risk—especially with the affordability of Class B product compared to creative and concierge office in Orange County.
GlobeSt.com: What types of redevelopment projects are getting the most attention, and are there any geographic patterns within the OC market?
Giordani: Blend and extend is the name of the game. Investors are snapping up buildings and portfolios with short lease terms, tired facades, and deferred maintenance and adding sharp common area design, bumping rents that are slightly below market to incentive tenants, and providing accessible, yet institutional property management services.
Marshall: We’ve seen our clients chasing core plus and value add acquisitions in accessible submarkets with good amenities. At this point in the cycle and in a rising rate environment, equity and their lenders are happy to take lower yields for a quick two to three business plan. Lending on buildings that have mid-sized tenants remains attractive because Orange County has so many privately owned businesses with long track records and expected future demand for their services.
