Relationships are the cornerstone of business at Artes Capital, a REIT platform that provides capital for real estate acquisition, development, repositioning and refinancing transactions across the Western States.
Recently, when the company was approached to underwrite the acquisition of a two-story, 67,432 rentable square feet office building in Santa Rosa, California, the Artes team took into consideration its standing relationships with the sponsor, broker and joint venture equity partner.
It is no secret that during the COVID-19 pandemic, the commercial office market has come under stress as occupancy rates have declined and the volume of future tenants remains uncertain. However, strong sponsorship made this transaction practicable. In addition, the Santa Rosa office complex was a value-add office building investment with a high-quality tenant mix.
“As a private debt fund, our primary focus is providing bridge and construction financing to experienced sponsors on their value-add and opportunistic commercial real estate projects,” said Artes Capital CEO Scott Taylor. “We don’t typically finance office buildings, as our preferred property types are industrial, pre-leased anchored retail, build-to-suit single tenant net lease retail, multifamily and single-family subdivisions. However, we got comfortable with the various risks in this transaction due to the borrower’s ability to secure leases with credit tenants whose businesses have been largely unaffected by the COVID pandemic.”
Artes provided a senior bridge loan to finance the building’s acquisition. The loan structure incorporated interest reserves as well as holdbacks for tenant improvements and leasing commissions. The total commitment represents a 76% loan-to-cost (LTC) and 68% loan-to-value (LTV).
With a population of just over 500,000 residents, the Santa Rosa real estate market includes the Bellevue Ranch, Bennett Valley and Copperfield commercial real estate submarkets. Santa Rosa is the fifth-most populous city in the North Bay Area and the largest city in the Sonoma County Wine Country region. Historically, the region has ranked among the nation’s top 15 cities for job growth, and unemployment figures have tracked below national and state averages, even through the pandemic. Santa Rosa’s commercial real estate market experiences consistently strong demand from businesses seeking an alternative to the higher-cost areas of San Jose and San Francisco, with predictable annual demand from top office-using sectors including government, healthcare, education and large corporate entities. These trends suggest that demand for office space in Santa Rosa will remain high, placing this transaction well within Artes’ suitable risk limits.
Artes derives 80 percent of its business from repeat clients, demonstrating its commitment to meaningful and lasting relationships. “We strive to serve our clients in pursuit of good projects,” Scott said. “We believe private real estate lending is a people-first business. Although we do not often finance office assets, our relationships with quality players in commercial real estate are what we value most, and we work hard to issue sound credit and capital solutions to sponsors who have proven their mettle. We work to earn the first call every time from the sponsors we work with. Together, we build on mutual trust, respect and expertise to add value for our clients.”
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