101. CalSTRS' Strategic Move: Navigating Commercial Real Estate Financing

CalSTRS' Strategic Move: Navigating Commercial Real Estate Financing



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Episode Transcript:

In a strategic move, the California State Teachers’ Retirement System, one of the nation's major pension plans, has successfully secured a $70 million refinancing deal for a prominent 24-story office building in Brentwood, located at 11755 Wilshire Blvd.

As reported by The Real Deal, the property stands at 63% leased this month, boasting an average rent of approximately $60 per square foot annually, surpassing the submarket's third-quarter average of $56 per square foot. Wells Fargo Bank orchestrated the senior mortgage, with $51.5 million of the financing earmarked for a forthcoming commercial mortgage-backed securities (CMBS) deal set to close next month, totaling around $519 million.

CalSTRS has been the proud owner of this iconic building since 1996. The refinancing played a crucial role in settling prior debts from Northwestern Mutual, with a 10-year loan of $72.8 million issued in July 2023, as revealed by public records. The new mortgage from Wells Fargo is scheduled to mature in 2029.

To sweeten the deal, CalSTRS contributed $960,000 toward both clearing its loan and establishing reserves for essential tenant improvements, according to TRD. Notably, Wells Fargo structured the loan at a conservative 43% loan-to-value ratio. This aligns with the current trend where lenders are opting for lower LTV ratios, necessitating property owners to inject more capital upfront for various reasons.

It's noteworthy that in 2019, the National Association of Realtors reported that approximately 70% of loans had loan-to-value ratios of 75% or 80%, offering a glimpse into the evolving dynamics of real estate financing. Earlier in the spring of 2023, CalSTRS faced the prospect of a write-down for its $52 billion real estate portfolio.

Christopher Ailman, Chief Investment Officer, expressed the fund's commitment to long-term investments, steering away from selling properties during market downturns. As Ailman articulated to the Financial Times, a robust combination of long-term leases and secure debt financing positions them to weather market fluctuations while continuing to enjoy a steady income stream.

This is Tyler Cauble, Signing off