Rodeo Drive Site Gets $38M Loan

Rodeo Drive Site Gets $38M Loan
Bulgari store in Beverly Hills.

A retail property on Rodeo Drive in Beverly Hills has received a $38 million loan for the fee simple interest.
The property at the corner of Rodeo Drive and Brighton Way has an 18,380-square-foot building with tenants including Guess, Goyard, Bulgari, Wolford, Christofle and Bonpoint.

San Francisco-based Gantry’s Andy Bratt and Amit Tyagi arranged the financing for a family. Radnor, Penn.-based Lincoln National Corp., a life company lender, provided the 18-year loan.
The property is subject to a ground lease. In a ground lease, different parties own the land and the improvements to the land.

For a landowner, ground leases are desirable because they represent guaranteed monthly income and the lessor is generally responsible for everything including building the property on the land and even property taxes.
If the tenant defaults on the lease or when the lease ends, the landowner is able to claim the property built on their land.

The owner of the improvements on the land, meanwhile, is able to build a property and run a business in a desirable area where land is usually hard to find.
This particular loan was for the land itself.

“It was an interesting structure. The loan is for the fee simple ownership of the lot, of the parcel, the dirt, and then they have a lease for the leasehold improvements and that generates income and then pays the ground lease payment,” Bratt said.

He added that it is easier to find financing for land rather than the improvements when it comes to ground leases.
“If you own the ground, that’s much easier to finance than the opposite side where if you have this ground lease payment and you are subject to increases over time … it’s a diminishing asset,” Bratt said. “If the owner defaults on their ground lease payments, then the ground lessor can foreclose upon the improvements and potentially wipe the lender out.”

Bratt said the Rodeo Drive loan was able to “capture the low-interest-rate environment” with a rate lower than 3% to allow the owner of the land to refinance and shorten the amortization.
The owner, he said, will be able to pay off the loan seven years faster than if no refinancing occurred, with payments that are roughly the same.

The end goal, he said, is for the owner to own the property “free and clear and not have any debt.”
Bratt added that retail is a “tale of two cities” right now, with Rodeo Drive and the Golden Triangle in Beverly Hills seeing a “significant amount of investment activity and capital expenditures and from very large investment firms and retailers.”

“Rodeo Drive actually performed very well because of the high-end nature of the retailers there during Covid,” he said. “It’s a tourist destination and it draws people there so a lot of retailers have to have a presence on that street for other reasons such as marketing and exposure.”

He said capital is still interested in well-performing retail in great locations that is “internet-resistant.” Daily needs-anchored centers, for example, are doing quite well while big box stores are having more difficulties.

“You can still get very attractive debt on well-performing internet-resistant type of retail,” Bratt said.

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