A few years ago, Freddie Mac Multifamily predicted abundant opportunity in the Puget Sound, Washington region. That’s one reason we opened a regional office in Seattle. Today, I’m happy to say our predictions were spot on. Rapid job growth has outpaced new development in this area in recent years. Earlier this year, for example, Amazon announced they were occupying an additional 350,000 square feet of office space in Bellevue, Washington. We’ve solidified some great deals in this part of the country, and I’d like to zero in on one property, just two blocks from Amazon’s new offices.
When we first visited Soma Towers in downtown Bellevue three years ago, Tower 1 was under construction and Tower 2 was simply a large hole in the ground. We have toured the site five times since then, watching it develop through various stages of construction and lease-up. This is the value of a regional production and underwriting staff with local market expertise. We don’t work from behind our computers. We go right to the site for a first-hand view of the property’s potential. This allows us to give the Borrower and Seller a better experience throughout quoting and structuring the deal.
Soma Towers posed a rare challenge. The deal was a pre-stabilized, lease-up transaction on new construction. The Borrower wanted the ability to combine two loans into one loan down the road. We provided a customized prepayment structure that allowed for an overlap of the open period on the backend of our deal with that on the backend of the pre-existing Tower 1 loan. Thus, the Borrower could refinance, combining both loans in the future without incurring any prepayment costs.
The property’s ground floors are going to be commercial spaces, so we didn’t have any income history. We structured a master lease with an affiliate of the Borrower; the lease will wind down as commercial income clears a defined income hurdle prior to securitization.
Having local market expertise was a tremendous help to the Seller, Borrower and us. It allowed us to offer a highly structured transaction that is custom-tailored for this property, in this specific location and for this Borrower. We worked collectively with our lending partners at Hunt Mortgage to offer a financing solution that provided the funds necessary to retire the construction loans in a timely manner and allow us to transfer the lease-up risk away from Freddie Mac.
The Soma Towers property sits in a prime location in downtown Bellevue, which has experienced rapid rent growth and positive absorption. In fact, Soma Towers leased up without any rental concessions. The ground floor will be home to food establishments serving the neighborhood’s businesses and residents. And, on top of that, the Borrower entered a regulatory agreement with the local municipality committing to set aside a certain percentage of the units at affordable levels. The qualifying loan is 50 percent uncapped.
The Soma Towers deal is exemplary of what Freddie Mac can offer in the multifamily space. We had our fingers on the pulse of this growing area, provided innovative structuring and underwriting, and had the flexibility to finance a combination of commercial space with residential and affordable units. A win-win-win!
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