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CMA
March 29, 2019  

Loan Sought to Transform LA Mall to Offices

A Hudson Pacific Properties partnership is seeking a floating-rate loan of up to $415 million to convert most of the Westside Pavilion mall in Los Angeles to office space.

The project got a big boost in January when Alphabet’s Google unit agreed to lease most of the new complex. Google’s 14-year agreement is expected to transform the financing request from what would have been a tough sell to a desirable assignment that will attract widespread bidding from banks and nonbanks alike.

The project’s estimated capitalization is $638 million. Lenders are being asked for loan proposals ranging from $308 million (a 48% loan-to-cost ratio) to $415 million (65%). The debt yield would be 15% at the low end of that range and 11% at the high end. Eastdil Secured is representing Los Angeles-based Hudson Pacific and its partner, Macerich of Santa Monica, Calif.

The 767,000-square-foot mall faced hard times in recent years, losing business to rival shopping centers and on-line retailers. Two department-store anchors — Macy’s and Nordstrom — departed, and the debt-service-coverage ratio on a $155 million securitized loan plummeted to 1.1 to 1 in mid-2017, from 1.4 to 1 at origination in 2012.

Last year, Hudson Pacific bought a 75% stake from mall operator Macerich for $142.5 million, in a deal that valued the property at $190 million. The duo then defeased the mortgage, which had been securitized via a $1.3 billion transaction (WFCM 2012-LC5).

The Hudson Pacific team will construct a 584,000-sf office complex. It will include terraces and patios with 15-foot-wide folding glass walls aimed at creating an indoor/outdoor environment for workers. There will also be a rooftop garden deck and a footbridge to the mall’s 12-screen Landmark movie theater, which will remain.

Google will also add its own improvements. Its lease starts in late 2021.

The property is at 10800 Pico Boulevard in West Los Angeles, near the intersection of Interstates 10 and 405.