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Alternative investments

Meritz arranges $60 mn mezzanine loans on LA skyscraper

Mar 25, 2021 (Gmt+09:00)

The Gas Company Tower (Courtesy of Brookfield Properties)
The Gas Company Tower (Courtesy of Brookfield Properties)

South Korea's Meritz Alternative Investment Management Co. has arranged 72 billion won, or slightly over $60 million, worth of mezzanine financing for a skyscraper in downtown Los Angeles from South Korean insurance companies.

The five-year loans are secured on the Gas Company Tower owned by Brookfield Properties, set up jointly with US pension funds, according to financial industry sources on Mar. 24.

The loans have seniority over the junior mezzanine financing provided by the US pension funds. The latter's participation in the junior mezzanine tranche increased the security of the senior mezzanine loans, said the sources.

They have a longer maturity than the tenants' remaining lease periods. Southern California Gas Company, the US' largest natural gas distributor, has been an anchor tenant since the building was completed in 1991. Accounting firm Deloitte and two law firms share the 1.4 million-square-foot office space as well. 

In 2013, Brookfield renovated the 52-story building at 555 West 5th Street for about $100 million. 

The unidentified Korean insurers anted up money in a vehicle set up by Meritz Alternative for the investment, for which expected returns were not disclosed. Meritz sourced the financing deal from a US bank it has worked with in the past.

It was the second time that the Meritz Financial Group unit underwrote mezzanine loans on the property. Back in July 2016, Meritz has arranged 50 billion won worth of senior mezzanine financing for the building. That was the first mezzanine investment product the company introduced for domestic institutional investors since its inception in early 2016. 

"Senior mezzanine financing is a favorite investment product for insurance companies that put a priority on safety," said a real estate investment company head in Seoul.

For the latest financing arrangement, Meritz hired a US real estate agency to take videos of the inside and outside of the building with cameras and drones. Then the Korean investment firm carried out virtual due diligence with a property assessment company. 

That marks one of the biggest overseas mezzanine financing provided by Korean investors since the COVID-19 outbreak in the first half of last year.

Meanwhile, South Korean investors in the Drew Las Vegas development project are at higher risk of losing their investment of 300 billion won in the stalled development project in Nevada, after its senior lenders decided to sell the security interest on their loans to a third party. They provided the mezzanine loans in 2019.

By Seon-Pyo Hong

rickey@hankyung.com 

Yeonhee Kim edited this article.

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