Overview

Commercial Lending Solutions arranged an $8,700,000 permanent loan refinancing on a Class B office building in Los Angeles, California. The property sits in the Hollywood submarket and carries a diverse tenant base weighted toward entertainment-adjacent creative and production users alongside conventional professional tenants. Getting this deal to close in the current cycle required finding one of the few balance sheets still willing to write office paper in Los Angeles and structuring around credit concerns that had pushed most institutional capital entirely out of the sector.

The Deal

The sponsor owned a stabilized Class B office building in Hollywood with in-place occupancy, a multi-tenant rent roll, and meaningful below-market leases that created a credible mark-to-market story as space turns over time. The objective was a permanent takeout: clean up the existing debt, lock in a fixed rate, and preserve enough cash-out to support ongoing leasing costs without tapping equity.

The property was not distressed. It had tenants paying rent, debt service coverage, and a submarket story that actually held up on inspection. The problem was not the asset. The problem was the asset class.

The Challenge

Life companies and CMBS conduits had largely stopped writing Class B office by the time this deal came to market. Both channels were concentrating almost entirely on trophy, amenitized Class A product in markets with demonstrable flight-to-quality demand. For a mid-size Class B building, those channels were effectively closed regardless of property-level performance. That is not a relationship problem. That is a mandate problem, and no amount of structure fixes a lender who has decided the sector is off-limits at the credit committee level.

The value-add component created a second layer of friction. Below-market in-place rents are a real opportunity, but lenders underwriting office right now are not getting paid to believe pro forma projections. Cap rates across the office sector had moved out enough that any lender sizing off future NOI was taking on lease-up risk they had no appetite to carry. The credit story had to be built on current income, not assumptions.

Hollywood itself helped, but only partially. The submarket's entertainment-adjacent tenant base, production companies, post-production shops, and creative services firms, gave the rent roll a different character than a conventional professional office building. No single lease rollover could break debt service. That is a meaningful credit point. But it does not override a lender's blanket policy on office, and a lot of shops had simply flagged the property type at the portfolio level and moved on.

The working universe of viable lenders came down to a short list: regional banks with specific Los Angeles office relationships, credit unions with balance sheet flexibility, and private debt funds willing to price for the sector risk. Each of those channels had a different set of constraints around leverage, amortization, and reserve requirements. Getting to credit approval meant structuring to the tightest version of what any of them could actually clear.

The Solution

The deal was placed with a regional balance sheet lender that had ongoing exposure to the Los Angeles office market and was still sizing loans off asset-specific fundamentals rather than headline office vacancy statistics. The structure was built around four things that got it through credit committee.

  • Conservative leverage. LTV was held in the low-to-mid 50s, tighter than a stabilized Class A refinancing in the same market would have drawn. The lender needed a meaningful equity cushion given where office cap rates had moved, and the sponsor accepted that constraint rather than pushing for maximum proceeds.
  • Current NOI underwriting. Pro forma rent assumptions were taken off the table entirely. The loan was sized off in-place income, and the mark-to-market upside stayed on the borrower's side of the ledger.
  • Reserve structure. TI and leasing commission exposure was addressed through upfront reserves funded at closing. The lender was not being asked to carry lease-up risk in their basis. The borrower carried it through a funded reserve that the lender controlled.
  • Amortization schedule. The deal was structured with a 25-year amortization schedule on a fixed-rate permanent term, which satisfied the lender's requirement for meaningful principal paydown relative to the loan balance over the hold period.

The Outcome

The sponsor closed an $8,700,000 fixed-rate permanent loan on a property type most of the lending market had stopped touching. The structure gave the borrower rate certainty, cleared existing debt, and preserved the value-add optionality intact. As below-market leases roll and rents mark up over the loan term, that upside flows entirely to the equity. The lender got a conservatively structured office credit with strong in-place coverage and a borrower carrying the execution risk. Both sides got what they needed because the structure was honest about what the market would actually support rather than what the best-case projections implied.