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CalSTRS scores $70M refinance on West LA office building
Wells Fargo funds senior mortgage on property with 63% occupancy
Not all office buildings have trouble finding new money.
The California State Teachers’ Retirement System has scored a $70 million loan to refinance its 337,400-square-foot office building at 11755 Wilshire Boulevard, according to property records filed with Los Angeles County.
Wells Fargo Bank provided the senior mortgage — of which $51.5 million is slated to be packaged into a commercial mortgage-backed securities deal, according to a KBRA report and Trepp data. The CMBS pool, expected to total about $519 million, is set to close next month.
The loan, which expires in 2029, was used to pay off previous debt from Northwestern Mutual, according to KBRA. CalSTRS also put in about $960,000 to help pay off the loan and fund reserves for tenant improvements.
Brokers, investors and developers all say lenders are extremely picky right now when it comes to lending on office properties, given the prominence of remote work and tenants continuing to shrink space.
The lenders out there are handing out debt at lower loan-to-value ratios, requiring owners to front more equity.
On the Wilshire deal, Wells Fargo disclosed to KBRA that it gave out the loan at a 43 percent loan-to-value ratio. In 2019, the National Association of Realtors reported that about 70 percent of loans had loan-to-value ratios of 75 or 80 percent.
As of this month, the office building was 63 percent leased, with average rents of about $60 per square foot a year — higher than West L.A.’s average asking rents of about $56 a foot in the third quarter.
The property’s largest tenant, Kinetic Content, has a lease expiring in 2026, but has a five-year renewal option.
In June, an entity linked to LaSalle Investment Management, which manages the building on behalf of CalSTRS, filed a lawsuit against Braunstein & Braunstein, claiming the law firm owed $920,000 in back rent at the building.
Cash flow at the property has risen steadily since 2021, when it took a hit, according to the KBRA report.
The building reported net cash flow of $7.9 million from January through October last year, up from $7.7 million for the entire 12 months of 2022.