Why CMBS Works in Palo Alto
Newmark Realty has arranged a $38.6M CMBS for Menlo Equities on a 45k SF Palo Alto office building at 529 Bryant that was converted to an Internet exchange. Newmark's Tom Dao says his team convinced the borrower to go the CMBS route by stepping up as the primary servicer (CMBS servicing was a bad experience for Menlo Equities in the past). With a 10-year loan life, there's bound to be issues, says Tom (either related to leasing or other loan servicing issues). Menlo can call Newmark if one pops up.
Newmark's Eric Von Berg, here proving finance guys do get outside, also worked on the deal. In Palo Alto, the loan/SF of space--a metric most lenders use--goes above the threshold traditional lenders are willing to dish out. (A life insurance company was willing to go up to $599/SF, says Tom.) The Newmark loan was $850/SF. For urban properties where cap rates have fallen and values have gone up, Tom thinks CMBS will be a big component of financing in the next two to three years as more CMBS loans are coming due.
