Ink dries on Thursday, November 11. On the 10th, downtown-based Ratkovich Co. scored a breakthrough financing deal. and Jerico Development of San Pedro held a public awareness event for the Westport project on Saturday, November 11. 12. Cheng broke ground.
Thanks to $90 million in construction financing from Texas public energy lender Petros PACE Finance, the project has now begun to redevelop the Los Angeles waterfront into a new retail and entertainment center – an efficiency loan program that has been in the works for over 10 years, and Parkview Financial in Brentwood.
The investor stake was previously provided by Osprey Investors, bringing Westport’s total Phase 1 funding to $155 million.
JLL arranged the financing structure for the deal, which is considered a coup in the current environment, as investors are largely on the sidelines of new retail developments.
“I’m proud of our team as they worked hard to secure an accretive financing package that will make Westport the centerpiece of Los Angeles’ waterfront,” Ratkovich CEO Brian Saenger said in a statement. “We’re in a time of economic uncertainty for commercial property, but that’s not the case in Westport.”
The team is aiming for a grand opening in 2024.
Transformation area
Hailed as a “transformative renaissance” and “first of its kind,” the 42-acre Westport is planned to overhaul San Pedro’s Ports O’ Call venue, bringing a range of dining and entertainment options to the South Bay. Restaurants will include the first satellite location of Hollywood restaurant Yamashiro, King and Queen Cantina and a market hall offering fast casual dining. Bark Social is a members-only off-leash dog park bar and café, and a 6,200-seat amphitheater is coming soon.
The initiative is “part of a larger redevelopment of the Seaport District,” Saenger said in an interview, which also includes strengthening the San Pedro Bay port complex and developing around anchors like the Aquarium of the Pacific in Long Beach.
“I think people will be excited not only to come to Westport and see what we have to offer, but to be exposed to everything around the Port of Los Angeles,” he said.
The agreement was signed in November. 10 Parkview loaned $35 million at typical private rates, while Petros loaned $55 million through the Commercial Property Assessed Clean Energy (C-PACE) financing program. Saenger said the blended rate for the two was in the “single digits,” but declined to provide an exact figure.
“We reached an agreement six months ago,” said Brad Rose, managing partner and head of originators at Parkview Financial. “And then we have a lot of timber that needs to be felled structurally and legally and to a point where everyone is ready to close.”
Ross said Westport was a “unique project, irreplaceable”, which ultimately convinced his team.
“It was produced over a long period of time,” he said. “They came to me initially and I said, ‘Ah, retail construction, no thanks.’ Even before Covid, it’s been a challenging part of the market.”
rental items
Apparently, it was the hard work of the developers that convinced the financiers.
Ross said Westport has “significantly pre-leased” tenants for the project, while Sanger said the Port of Los Angeles, which owns the property and leases it to Ratkovich under a 66-year ground lease, will invest more than Los Angeles $1 billion
The waterfront, including San Pedro and Wilmington, has been adjacent to and complementary to the Westport site since 2005.
Even after underwriting the loan “extremely conservatively,” it remained viable for Parkview, Ross said.
“It was a serious project, just to the extent that they could show us. By the time we saw it, they had pre-leased 70 percent of the retail space. That was unheard of,” Ross said. “There has also been a huge investment by the city, port and borrowers over the past decade – the time and money have shown a huge commitment to this project.”
Andy Meyer, Managing Partner of Petros PACE Finance, praised Ratkovich and Jerico as an accomplished development team that brought a unique project to the table.
“By the time we closed, most of the space was already pre-leased, which got everyone excited about the viability and success of the deal,” said Meyer, who oversees the company’s Origins business and was the primary contact for negotiations.
C-PACE Financing provides fixed-rate, low-interest financing to projects that meet one of four criteria—demonstrating energy efficiency, water efficiency, producing renewable energy, and resiliency attributes including seismic bracing or retrofitting. Saenger said West Harbor includes extensive energy and water conservation features.
The nature of the financing makes it repayable twice a year through property tax assessments, a feature that also allows it to transfer with any change in ownership of the property (or in this case a lease). According to Meyer, the C-PACE financing is secured by a special assessment lien, such as a tax lien, and has a higher lien priority than a mortgage. This allows lenders to better protect properties, he said.
“They were able to take advantage of interest rates before they raised them multiple times over the past 12 months,” Meyer added.
Meyer said West Harbor’s $55 million financing deal represents a relatively large C-PACE loan for Petros. Their largest loan was $153 million for the Black Desert resort in Utah.
Part of putting the West Harbor deal together was getting Parkview and Port of LA comfortable with a C-PACE deal. Unlike a typical financing transaction, the lender had to document the leasehold interest because Ratkovich was the lessee and not the property owner, which created a “complexly structured transaction,” according to Meyer.
On top of that, they had to deal with rising construction material costs, regular rate hikes by the Federal Reserve, and the economic fallout from Russia’s invasion of Ukraine.Not an insurmountable task given Ratkovich and Jerico’s 10-year relationship with the Port of Los Angeles
“The team worked hard and built a strong relationship, and we were able to get the lender up to speed and answer questions. It just took time and patience. Even with all of these things going on, we were able to cross the finish line,” Saenger said.
“Along the way we’ve had to work with the ports to extend timetables and deadlines, all of which have been great, small victories, but they all culminated last Thursday when we secured those two loans and then when we A groundbreaking ceremony was held on Saturday.”
Ross said the deal marks Parkview’s first partnership with Ratkovic.
“Their reputation precedes them as sponsors and developers,” he said. “As long as I’ve been in L.A. real estate, I’ve certainly known Ratkovich, and then I got to know Jerico, which is really impressive.”