November 14, 2014

The Cool Way to Finance Hotels

EB-5 financing exploded during the recession and has found a place in funding new hotel projects, according to Homeier & Law's Michael Homeier,who spoke at our Hotel Summit on Tuesday. (If they rally want to make a splash, get Apple to hold a big presentation for the release of the EB-6.)

The beauty of EB-5 financing: foreign investors are willing to accept a green card as most of their profit, reducing project costs. In addition, Michael says, it can serve as part of a developer's equity when seeking a construction loan.

Lucent Capital MLA

200 of you joined us at the historic luxury Millennium Biltmore Hotel in Downtown LA.

CohnReznick (Field) MLA

The Kor Group principal Brian De Lowe says he loves LA, but the supply/demand metrics are so favorable, it's hard to find great assets. Kor owns two hotels in LA--one in Hollywood and another it's developing in Downtown (on Broadway). Kor is also building the one new hotel in downtown San Francisco's pipeline, a 135-room lifestyle boutique at Market and Seventh.

Another speaker, Chartres Lodging Group president Maki Bara says LA is one of the few markets that still has a positive demand-supply relationship. Downtown has seen more supply added than the rest of the submarkets, but for a good reason: In the past three years, RevPAR growth has been in the high teens to 20%-plus, she says.

Sonnenblick Development principal Bob Sonnenblick, also a panelist, says LA just finished its best 12 months ever in total volume of hotel bookings and tourism, and supply is under control. In general, the coasts are very strong but the middle of the country is still fairly flat. He's 100% concentrated on new development, but his biggest problem is that there is no land left in LA. (It's why Katy Perry is always Walkin' on Air.)

Our moderator, Arent Fox's Rich Brand, asked panelists about hotel chains launching new brands and categories. Brian says the demographic he's pursuing doesn't value a big flag, and he notes independent hotels weathered the downturn along with their bigger cousins. Maki says loyalty points matter to Baby Boomers and Gen X, but a large portion of Millennials are brand-agnostic. Bob says there are certain locations where you might be better off without a big brand if there's an external room generator you can use instead (think beaches or convention centers). In addition, construction lenders now are more open to projects without a brand.

Rich says he's seeing a lot of deals for limited and select-service hotels, and fewer full-service ones being built. Bob says the former have a higher profit margin because you don't have a big spa, room service or gobs of meeting space. "It's a rooms-only box." Brian says the debt and equity markets love limited service because they view it as less risky. For his San Francisco project, he cobbled together EB-5 financing, historic and New Market tax credits, and a low-leverage senior construction loan.

  
  
Christina (Let'sTalk)
Lend Lease (Create-the-Best) LA
Five Star (NoWater) LA
Hall Structured (CalNeva) LA
CDC (Evelon-Nov) LA
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The Deal Sheet

Lee & Associates-LA North/Ventura announced executive changes at its four offices, effective in February. When we heard about the management shuffle, we had to sit down--just like Lee & Associates CEO Jeffrey Rinkov (above). Lee LA North/Ventura president Mike Tingus (second from left) was named chairman of the board, while three principals were named managing directors for their respective offices: Grant Fulkerson (Calabasas), an industrial specialist who has brokered more than 4M SF of sales and leases since beginning his career with Lee in 2004; Jim Fisher (Sherman Oaks), a multifamily broker who has transacted more than $3B in sales during his career; and John Battle (Ventura County and Antelope Valley), who has represented and advised many of the area's largest developers, executing more than $1.5B in deals over his career. Mike's pegged $1.5B in sales, leases and JVs, and is excited to get back to full‐time dealmaking. The moves also coincide with the firm's 20th anniversary.

SALES

Optimus Properties bought the Atrium Building, a 30k SF property in Pacific Palisades (860 Via de la Paz) from Resource Capital Corp for $11.4M. Located in The Village commercial district, the three-story building's atrium has a wraparound balcony and seven additional balconies. Madison Partners' Bob Safai and Matt Case repped the seller.

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California Home Builders, a division of Canoga Park-based Evenhaim Industries Corp, bought 3.2 acres in Woodland Hills entitled for 232 apartments or condos from REW De Soto Partners LLC. Located at the northeast corner of Variel Avenue and Erwin Street in the Warner Center area, the site was part of the 10-acre Panavision HQ that was sold to Dinerstein Cos in 2012, with an option for REW De Soto to buy back the 3.2-acre portion once it was recorded as a separate parcel. Dinerstein is finishing up the 395-unit Millennium Woodland Hills on its six-plus acres. According to Lee & Associates' John Battle, who repped the seller, the strategy was to proceed with two separate development plans. Rodeo Realty's Corey Brown repped the buyer.

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HealthSouth Corp bought 4.8 acres in Murrieta (35470 Whitewood Rd) to build a 54k SF two-story inpatient rehab hospital. Design work on the 50-bed facility is underway, and the company will work with the state's OSHPD in order to begin construction in Q3 2016. The new hospital will join Loma Linda University Medical Center-Murrieta and the planned 40-acre Kaiser Permanente Murrieta Valley health care campus on the North Murrieta Tech Corridor, which was recently rezoned for office research park development.

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Marcus & Millichap's Tony Azzi sold four multifamily properties on the Westside--1677 and 11683 Goshen Ave and 11666 Mayfield Ave in Brentwood, 1236 Ninth St in Santa Monica, and 1611 S Beverly Glen Blvd in Westwood--for a total of $47.2M. The properties were built between 1962 and 2014 and total 111 units.

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Bryant Brislin and Nick Giannini of The Hoffman Co's LA urban infill team closed four properties in 48 hours for a total of $25M in land sales. The properties are in Valley Village, Echo Park, Hollywood and West Covina.

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E.R. Mehr-Grand LLC bought an 8,900 SF industrial building, 1314-1320 S Grand Ave in LA, from South Grand LLC for just over $3M. Heger Industrial's William Morrison and Thomas Williams repped the buyer, while Lee & Associates' Mollie Dietsch, Jim Halferty and Mike Smith repped the seller.

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Benedict Canyon Equities sold Vista Ridge, an eight-building, 81-unit apartment community in Sylmar (13500 Foothill Blvd), to a private owner/ operator for just under $14.3M or nearly $176k/unit. Located in an area of predominantly single-family homes, the non-rent controlled property has been extensively remodeled including new roofs. Marcus & Millichap's Ronald Harris, Rick Raymundo, Paul Darrow and Michael DiSimone repped the seller.

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Shadow Trails, a 64-unit, seven-building apartment complex in Sylmar (15520 Foothill Blvd) traded for $10M or $157k/unit. Lee & Associates' Jim Fisher and Mike Smith repped both the seller, who built the property in 1985, and the buyer, a private entity.

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Fresh American Produce bought a 57k SF industrial building in Vernon (2858 E 26th St) from two family trusts for $6.4M. Heger Industrial's Jon Reno and Trevor Gale repped the sellers, and the Charles Dunn Co repped the buyer.

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Marcus & Millichap's Rick Raymundo sold a 26-unit apartment building in Van Nuys (8165 Langdon Ave) for just over $3.6M, or nearly $154/SF.

LEASES

True Religion Apparel leased a 72k SF, free-standing office building in Manhattan Beach (1888 Rosecrans Ave) for its new HQ. Cushman & Wakefield's Michael DeSantis and John Doyle repped the tenant, collaborating with the Global Portfolio Solutions Group--John Minervini, Erik Larson, Robin Dodson and Chris Tolles. The denim clothing manufacturer is relocating from the City of Vernon. Cushman & Wakefield's Nasim Yalpani will oversee True Religion's build-out.

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Verizon Wireless signed a seven-year, 2,600 SF lease for a corporate-owned store at Metro Art Sherman Oaks (14141 Ventura Blvd in Sherman Oaks), bringing the $50M high-end mixed-use retail and residential project to full occupancy less than a year after completion. The project consists of 112 luxury apartments and nearly 17k SF of retail space; other tenants include Mendocino Farms, Island's and Berkshire Hathaway Home Services. This is the first mid-block, mixed-use project to be built in Sherman Oaks, according to Colliers International's Gabe Kadosh, who repped developer and general contractor BW Brody Affiliated along with May Realty Advisors' Matthew May. Colliers' Eric Lambiase represented Verizon.

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Yogasmoga, a new entrant in the "athleisure" fitness-fashion trade, opened its first West Coast store at 11911 San Vicente Blvd in West LA. The store designs, manufactures and sells women's and men's yoga-inspired apparel, all of which is made in the USA with R&D in California. Yogasmoga (smoga means "things that go with") was founded by two siblings from the Himalayan region of India.

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Noodle Pavilion Thai Cafe leased a 2,931 SF restaurant space at 20022 Ventura Blvd in Woodland Hills. Both sides were represented by illi Commercial Real Estate: J. Richard Leyner and Michael Haim Sharon for the landlord, and George Ross and Jordan Lolli for the tenant.

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Senor Crawfish Restaurant signed a five-year lease on a 2,500 SF restaurant space at 13213 Gladstone Ave in Sylmar. Todd Nathanson, John Raudsep, Kyle Fishburn and Jordan Lolli of illi Commercial Real Estate repped the landlord.

FINANCE

Grandbridge Real Estate Capital's Kevin Mulvaney arranged two loans totaling $30M secured by two parcels in downtown Santa Monica. Both sites are ground-leased to a hotel developer/operator for 60 years, though neither project has been built. AIG Asset Management provided the non-recourse financing.

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El Segundo-based Venture West Funding arranged $12.5M in refi loans for nine multifamily properties in NorCal totaling 206 units. Matt Douglas and Jean-Marc Herrouin secured the financing through Union Bank and Banc of California. The borrower, Marr Family Trust, is the owner of Community Realty Property Management Inc.

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Marcus & Millichap Capital Corp's Danny Abergel arranged $12.1 million in cash-out refinancing for two apartment buildings totaling 229 units in North Hollywood. The loans were part of a multifamily portfolio that included a third refi of nearly $3.2M for 36 units and a fourth for $4.5M and 52 units.

CONSTRUCTION & DEVELOPMENT

ETCO Homes launched construction of 460 Palm, a 35-unit luxury condo development in Beverly Hills (460 N Palm Dr). The owners, who anticipate pricing to range up to $5M for a penthouse unit, previously built and sold out a similar project at 432 Oakhurst Dr in 12 months. Initial occupancy: spring 2015.

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Bernards was selected as design-builder for a $110M, six-story patient tower at Henry Mayo Newhall Hospital, 23845 McBean Parkway in Valencia, partnered with the LA office of HMC Architects. The 160k SF tower will connect to the existing hospital and will add 116 private room beds. (One floor will be left as shell area for the future build-out of 33 additional beds.) Completion: May 2018.

PROPERTY MANAGEMENT

CBRE Group won a multi-year contract to provide integrated real estate services for MemorialCare Health System. CBRE Healthcare will provide strategic real estate planning, property management, transaction management, lease administration and real estate accounting for MemorialCare's outpatient portfolio of 85 locations and 1.6M SF in LA and Orange counties.

KUDOS

Kennedy Wilson chairman and CEO William McMorrow, second from right, received the 2014 Spirit of Life Award from the Los Angeles Real Estate and Construction Industries Council, which raised more than $1.5M for cancer and diabetes research at City of Hope. He's surrounded by City of Hope president Robert Stone, LARE Council leader Steve Jaffe of BH Properties and Ed Sachse of Kennedy Wilson's brokerage group.

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Kilroy Realty and Macerich were awarded NAREIT's 2014 Leader in the Light Award for the office and retail sectors, respectively. The org's highest sustainability honor recognizes one winner in each property sector, evaluating various factors (energy, water, waste initiatives) and incorporating the results of the Global Real Estate Sustainability Benchmark. This year, the GRESB ranked Kilroy first out of 151 North American respondents across all sectors. Macerich was designated a GRESB Green Star 2014, and its 22-story Tysons Tower office building at its Tysons Corner Center regional mall has earned LEED Gold certification.

  
  
Lee (Results-Nov) LA
Downtown Long Beach (700+) LA
CohnReznick (Field) LA
Clark Pacific (Branding2) LA
Loeb and Loeb (REAttorney)
Bisnow (Healthy)
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