Los Angeles Office Complex Lands $550M Loan

The deal marks one of the first big CMBS transactions since the COVID-19 crisis stalled most of the financial markets.

City National Plaza. Image courtesy of CommonWealth Partners

The commercial mortgage-backed securities market is slowly coming back to life and the $550 million refinance of City National Plaza, a LEED Platinum, 2.5 million-square-foot downtown Los Angeles mixed-use and office complex, is among the deals leading the way back.

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Morgan Stanley and Goldman Sachs originated the CMBS loan for the trophy buildings’ owners, a joint venture of CommonWealth Partners and California Public Employees’ Retirement System (CalPERS). The 10-year non-recourse loan has a fixed rate of 2.44 percent and requires monthly interest-only payments. It is secured by the borrowers’ fee simple interest in the twin, 52-story Class A office towers that take up an entire block at 515-555 South Flower St.  

The majority of the $550 million mortgage includes a $330 million senior A note that will be securitized as MSC 2020-CNP, a CMBS single-asset single-borrower (SASB) transaction. A $50 million A note was securitized as GSMS 2020-GC47, according to Kroll Bond Rating Agency. The remaining notes are expected to part of future CMBS transactions, according to a preliminary ratings report by KBRA.

Shlomi Ronen, managing principal & founder of Dekel Capital, told Commercial Property Executive that the playbook is similar to the 2008-2009 financial crisis by starting with simpler single-asset single-borrower CMBS deals.

“That’s the key. We’re going to need some of these single-property types of securitizations done. They are relatively low-level deals that make it easy for investors to pick up,” Ronen said.

Property details

City National Plaza was developed in 1971 and acquired by the joint venture in 2013 for $858 million. Since acquiring the iconic downtown Los Angeles property, the owners have invested about $193 million in upgrades including $127 million for tenant improvements and $66 million for capital expenditures, KBRA reported. The property has 2.4 million square feet of office space and 123,375 square feet of retail space, along with 3,240 parking spaces. About 800 are located in a two-level underground garage and 2,436 spaces are located in a second garage one block north.

The asset is 81.4 percent leased with a mix of financial services, legal and creative office tenants. Major tenants include City National Bank; Federal Insurance Co.; M. Arthur Gensler Jr. & Associates architectural firm and several law firms such as Paul Hastings LLP and Jones Day. All the retail tenants are closed due to the COVID-19 crisis and most of the office tenants are working from home. Several office and restaurant tenants have requested rent relief because of the pandemic’s impact.

The loan has remained current since it was originated March 25 and the borrowers have not made any requests for relief, modification and forbearance, KBRA stated. The loan is structured with a $13.6 million debt service reserve, which will be enough to pay one year of debt service, according to the KBRA report. The proceeds from the mortgage loan and $3.6 million of cash equity were used to retire existing debt provided by MetLife and New York State Teachers’ Retirement System.

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