As Seen In The Colorado Real Estate Journal – Oct 15 – Nov 4, 2014
Denver-based Essex Financial Group recently arranged an $85.13 million refinance of a 19-property, 1.95-millionsquare-foot industrial portfolio along the Front Range.
The longtime owner of the properties is Denver-based Etkin Johnson Real Estate Partners.
The lender was TIAA-CREF, according to Etkin Johnson. TIAA-CREF is a longtime correspondent life insurance company with Essex.
The refinance was handled by Jeff Riggs and Mike Jeffries, who are, respectively, the president and a principal of Essex.
The 10-year, nonrecourse loan for the 63 percent loan-to-value transaction has an interest rate of 4.45 percent. The loan is amortized over 30 years.
The properties, known as the Colorado Industrial Portfolio, or CIP, are located from Boulder to Colorado Springs and range in size from 26,078 sf to 293,150 sf.
“The Essex team did an excellent job helping us navigate through this process and successfully closing the financing,” said Aaron Johnson, Etkin Johnson’s vice president of investments.
“They played an important role in our financial strategy,” Johnson added.
TIAA-CREF had refinanced the loan several times in the past, allowing Etkin Johnson to take advantage of falling interest rates.
“This is the third time we have done a transaction for these properties with this particular insurance company,” Jeffries said.
The current loan was maturing at the end of the year.
“We, like everyone else, think that interest rates are going to shoot up, although it hasn’t happened yet,” Jeffries said.
After meeting with Etkin Johnson and the lender, the best strategy was apparent: “Let’s get a great rate locked in before the party is over,” Jeffries said.
The refinance into a lower interest rate will increase Etkin Johnson’s cash flow by $2 million per year.
The company also intends to use a portion of the excess cash from the refinance to address near-term capital improvements as well as establish a working capital reserve.
“CIP has been a big winner for Etkin Johnson and its investors,” said David Johnson, president of Etkin Johnson.
“Our investors have achieved more than double their return on capital and we look forward to increasing their returns over the next several years,” Johnson said.
There would have been a lot of lenders interested in refinancing the portfolio if it had been shopped to the entire market, according to Jeffries.
Since TIAA-CREF originally made the first loan 17 years ago, “The plan was to give the lender the first crack at refinancing it,” Jeffries said.
“If that didn’t work out, we would have gone to the market. But the existing lender provided a great rate with great terms.”
When the process began, there were 20 buildings in the portfolio, which had a total of about 2 million sf, but Etkin Johnson sold one.
“That complicated the deal a bit as far as allocating the dollars to each property,” Jeffries said, but that issue was addressed and resolved.
Etkin Johnson acquired the properties between 1990 and 1998.
“They run the gamut from high-finish buildings that have got low finishes to low finishes with high ceilings,” Jeffries said. “There are a few single tenant buildings, but most of them are multitenant buildings. In total, they probably have 175 different tenants.”
The one sale from the original portfolio was for a single-tenant building. The tenant wanted to be an owner-occupant.
“He probably paid more than the market value for it,” Jeffries said. “It was one of those deals where he would say, ‘I can buy it for $100 per square foot, which is a bit above the market, but I know I can’t build a new building for $100 per square foot, so it makes sense.'”
Overall, the portfolio was about 94 percent leased at the time of the sale, a bit above its historic average of 90 percent to 92 percent, he said. Twelve of the properties are 100 percent leased.
“I’m very pleased with the extraordinary work and dedication of our entire team that led to this financing,” said Bruce Etkin, chairman of Etkin Johnson.
His namesake company prides itself on taking care of its tenants.
“With a focus on best-in-class management, preventive maintenance and responsive service, we’ve optimized tenant loyalty and maintained the assets in a superior condition,” Etkin said.
“This steadfast commitment from our associates, investors and tenants has allowed us to maximize the portfolio’s long-term growth, income and stakeholder value,” said Etkin, whose company’s entire portfolio includes 5 million sf of office, retail, apartments, hotel and industrial holdings worth more than $500 million.
In addition to the CIP loan, Etkin Johnson has secured another $56 million in financing through a variety of life companies and banks for four industrial/flex properties in Colorado Technology Center, three assets at Lafayette Corporate Center along with three buildings and nearly 18 acres at Church Ranch Business Center, rounding out the year-to-date loan volume of more than $141 million.
“This is a great time to take advantage of today’s capital markets and low interest rates,” David Johnson said.
“In addition to the financing we’ve secured year to date, we anticipate refinancing another $60 million before year-end,” said Johnson.
If Etkin Johnson ever wanted to sell the portfolio, there would be plenty of buyers, Jeffries said.
“I think strategically, it is their intention to keep it for the long term,” Jeffries said.
He estimated the value of the entire portfolio at about $150 million.
“If they were going to sell the portfolio, there would be a lot of big players interested in a $150 million, diversified portfolio across a wide geographic area, as opposed to paying $150 million for one asset in downtown,” he said.
He also said it is always possible that there will be a “oneoff” sale here and there, such as property that sold to the tenant after the refinance process began.