March 19, 2019 – George Smith Partners, one of the nation’s leading commercial real estate capital market advisors, has successfully arranged $101.3 million in non-recourse bridge debt for a 375,000 square-foot, 37-acre, open-air regional shopping center in La Habra, California on behalf of the property owner, DJM Capital Partners Inc.
“Dual-anchored by two top-name grocery stores, Sprouts and Smart & Final, this is a large property in the midst of a successful repositioning,” says Steve Bram, Principal/Co-Founder of George Smith Partners. “Led by experienced and well-respected ownership, the center has attracted national credit tenants including Petco, Ulta, Hobby Lobby, Ross Dress For Less, and LA Fitness, and is situated in a prime location within the La Habra market. Our team at George Smith Partners was able to draw upon each of these elements to secure maximum leverage for this bridge loan.”
Bram worked on behalf of DJM Capital Partners Inc. to arrange $96.6 million in initial funding and $4.7 million in future funding for the development of a new pad at the intersection of Imperial Highway and Beach Boulevard. The pad is pre-leased to Starbucks and Jimmy John’s. The financing will also fund a tenant improvement package for a Regal Cinema lease extension that will include a wraparound screen for the 16-screen neighborhood cinema.
“During the financing process, George Smith Partners was able to capitalize on a lease renewal signed by Smart & Final in order to achieve even more favorable terms for our firm, including non-onerous returns on reserves,” says Lindsay Parton, Principal with DJM Capital Partners. “By securing financing with an extremely competitive rate and attractive terms, we are well-positioned to complete the property’s transformation into a true lifestyle center for the community and its visitors to enjoy for years to come.”
Parton adds that the loan, which replaced existing senior and mezzanine loans on the property, covered closing costs and will fund 100% of future capital expenditures, tenant improvements, and leasing commission costs associated with the final stages of the property’s stabilization.
The loan was negotiated at an interest rate of LIBOR plus 3.20%+, bringing the 24-month interest-only loan offers three 12-month options to extend and has an origination fee of 75 basis points. Yield maintenance is 15 months and is open thereafter. Loan-to-value is 75% currently, dropping to 70% upon property stabilization, and the debt yield for the property is 7.8%.
Healthy Market Fundamentals for La Habra
“La Habra’s retail sector is demonstrating a robust growth trajectory, indicating that strong grocery-anchored centers like this one are a smart investment,” says Bram. “The market saw the introduction of a 17,000 square-foot Aldi prototype store in January 2018 that marked the beginning of that retailer’s expansion in the region, showing that retail fundamentals are strong there.”
The Orange County retail market as a whole is also showing healthy fundamentals, with vacancy dropping to 4.8%, its lowest rate since before the recession. Upward pressure on retail rents has pushed rates to more than $2.00 per square foot for the first time since 2010.
“Retail growth is dependent upon residential growth, and residential data also points to positive trends in La Habra,” adds Bram. “Median home prices increased by $20,500—a total of 4%—in the city over the past year, and the average price per square foot of a home for this same period rose from $357 to $376.”