The Challenge:

The tenant has the option to vacate at any time after 18 months. From a lender’s perspective, we needed to be able to provide a compelling story as to why there was very little risk in placing debt on the subject property.

 

The mitigating factors in reducing risk to the lender were as follows:

• Upon speaking with the individual in charge of California government leases it was disclosed that the state needs an additional 500,000 square feet of tenant space, which is non-existent. Therefore, if the current department were to vacate, the state would be able to immediately backfill the vacancy.
• It was noted that there are only 1-2 spaces in Sacramento, exceeding 100,000 square feet which are lead certified.
• Construction costs to duplicate an asset of comparable size and quality would cost in excess of $275 per square foot.
• A new lease was executed for 96 months.
• The property underwent a $9mm renovation in 2013.

 

Ultimately, after presenting loan submission packages to 22 lenders, we were successful in identifying the one lender who was willing to offer the borrower’s a 75% loan-to-value.