The Deal
A prominent Los Angeles law firm approached Commercial Lending Solutions seeking permanent financing for a $9.8 million office condominium acquisition in Century City. The firm had been leasing space in the same high-rise for over a decade and decided to purchase their 8,500 square foot unit rather than renew their lease at significantly higher rates.
The property sits in one of Century City's premier office towers, featuring Class A amenities and proximity to major financial and entertainment industry tenants. The borrower, with strong financials and over 20 years of operating history, sought to capitalize on the ownership opportunity while locking in their occupancy costs long-term.
The Challenge
Office condominiums represent a specialized niche that most institutional lenders actively avoid. Unlike traditional commercial real estate where borrowers own the entire building and land, condo financing involves shared ownership structures, homeowner association governance, and complex common area arrangements.
The primary lending concerns centered around collateral complexity. In a foreclosure scenario, lenders face additional complications including HOA approval processes, shared building systems, and potential conflicts with other unit owners. Most banks view these factors as unacceptable credit enhancements to their underwriting models.
Initial quotes from five regional banks ranged from 50% to 55% loan-to-value, well below the borrower's target leverage. Several national banks declined the opportunity entirely, citing internal policies against condominium commercial lending. The limited financing options threatened to derail the acquisition, particularly given the seller's compressed timeline and competing cash offers.
Additionally, the borrower needed to demonstrate that monthly debt service would provide meaningful savings compared to their existing lease obligations, making the financing structure critical to the overall investment thesis.
The Solution
Through our network of portfolio lenders, we identified a regional bank with specific expertise in Century City office condominium transactions. This lender had previously financed four deals in the same building over the past three years, giving them intimate knowledge of the property's financial performance, HOA management quality, and market dynamics.
The lender's familiarity with the asset proved decisive. Their underwriting team had already analyzed the building's master insurance policies, reserve fund adequacy, and HOA financial statements during previous transactions. This institutional knowledge eliminated much of the due diligence uncertainty that typically makes office condo deals uneconomical for most banks.
We structured the transaction as a seven-year fixed-rate permanent loan at 65% loan-to-value with 25-year amortization. The rate locked at 6.75%, reflecting a reasonable spread over comparable office building transactions given the specialized nature of the collateral.
The borrower provided a 35% down payment of $3.43 million, demonstrating significant equity commitment that further mitigated the lender's risk concerns. Personal guarantees from the firm's managing partners provided additional credit support during the initial three-year period.
The Outcome
The transaction closed within 45 days of application, meeting the purchase contract timeline despite the specialized underwriting requirements. The borrower secured $6.37 million in permanent financing, achieving their target leverage while maintaining competitive pricing.
Monthly debt service totaled approximately $42,500, representing a 40% reduction compared to the firm's previous lease payments. This savings improved the firm's cash flow position while providing long-term occupancy cost certainty in an increasingly expensive Century City market.
The seven-year fixed rate structure protects against interest rate volatility during the borrower's business planning horizon, while the 25-year amortization keeps monthly payments manageable. The loan includes standard commercial terms with no prepayment penalties after year three, maintaining future refinancing flexibility.
For the law firm, ownership provides additional benefits beyond monthly savings, including potential appreciation, tax advantages through depreciation deductions, and elimination of lease renewal risk. The firm can now focus on client service rather than real estate market uncertainties.
This transaction demonstrates how specialized lender relationships can unlock financing solutions in niche property types that mainstream banks avoid. Success in office condominium financing requires identifying lenders with relevant experience and risk appetite rather than pursuing traditional institutional channels.
Trevor Damyan is Managing Director at Commercial Lending Solutions in Los Angeles, specializing in complex commercial real estate transactions across California markets.