Gantry arranged financing in the amount of $38.6 million ($850/sf) for Menlo Equities on a 45,319 square foot Palo Alto office building that was converted to an internet exchange. The property is strategically located in downtown Palo Alto, a critical nexus at the heart of Silicon Valley. The loan terms are 10-year, fixed rate, amortized over a 30-year schedule after a five and one-half year interest-only period. The loan is non-recourse. Eric Von Berg, Principal, and Tom Dao, Associate, at Gantry, sourced the loan through Wells Fargo’s CMBS program. “We were pleased with the execution on this financing.” Said Kevin Kujawski, CFO for Menlo Equities. “For several reasons, this financing needed to go the conduit route. Gantry was able to offer several CMBS choices, where Gantry retains the Primary Servicing roll for the life of the loan. That was important to us. The loan was placed quickly and the closing went very smoothly.” Gantry as Primary Servicer is working through Wells Fargo as the Master Servicer. In this type of servicing arrangement, Gantry performs all of the functions they perform for their life insurance servicing clients; holding and releasing escrows, reviewing new leases, making routine property inspection, conduction tax and insurance reviews, etc. As Primary Servicer, Gantry remains the borrower’s principal point of contact with Gantry working with the Master and Special servicer on unusual items that require higher levels of approval. Gantry is a full service mortgage banking firm with a strong lineup of correspondent lenders utilizing Gantry’s production, closing and servicing capabilities. Established in 1991, Gantry is currently staffed by over 60 employees in regional offices throughout the western United States. The company services over $8 billion representing 900+ loans. Gantry is rated as a Primary Servicer by Standard and Poor’s and is one of a select few non-banking/non-insurance chartered companies with this designation. For more information on this transaction please contact Eric Von Berg at (415) 956-9922 or Michael Heagerty at (415) 956-9854. By Joe Gose A $38.6 million conduit refinancing of 529 Bryant St. in Palo Alto that provided owner Menlo Equities the opportunity to take a long-term position in a coveted downtown property represents a harbinger of the commercial real estate lending environment. Not only does it signal the willingness of commercial mortgage-backed securities (CMBS) lenders to more aggressively go after deals, but it also highlights an effort to improve loan servicing, which has largely been a source of angst among borrowers that have tapped CMBS debt over time. Palo Alto-based Menlo Equities, in fact, wanted to secure a loan from a portfolio lender such as a life insurance company due to its past experiences with CMBS loans and servicers, said Eric Von Berg, a principal in the San Francisco office of mortgage banker Gantry, which facilitated the CMBS loan through Wells Fargo Bank. Yet given the pricey neighborhood, it became apparent that a conduit loan was the best option available for the company, which wanted to pay off investors amid its aim to take a long-term stake in the 84-year-old building. The 45,319-square-foot property, also referred to as the Palo Alto Internet Exchange, went through a major renovation a decade ago after becoming an Internet colocation data center and Internet exchange in 1996. While a life insurance company was willing to lend $599 per square foot in proceeds on the property, Von Berg said, it wanted fast amortization to protect its exposure at lease expiration. According to a prospectus filed with theSecurities and Exchange Commission, Redwood City-based colocation and data center provider Equinix, Inc. holds a master lease in the building until May 2025 (and one 10-year extension option) and subleases the space to other tenants. Alternatively, Wells Fargo provided financing totaling $850 per square foot, he said. Additionally, the 10-year loan features a 30-year amortization schedule, a 70.2 percent loan-to-value ratio, a 4.47 percent interest rate and five-anda- half years of interest-only payments. That’s a significant departure from five years ago when CMBS lenders would not consider financing the building, he said. “It’s just night and day how the CMBS world has changed over the last five years,” Von Berg added. “Downtown Palo Alto properties are hard to find, so it made a lot of sense to hold this property for the long term.” Gantry’s intent to assume the role of primary servicer after the loan was bundled and sold with other mortgages also served as a key to locking down the transaction, said Von Berg and Kevin Kujawski, CFO for Menlo Equities, a privately held commercial real estate investor and developer focused on value add properties in technology markets. “Gantry was able to offer several CMBS choices, where Gantry retains the primary servicing role for the life of the loan,” Kujawski said in a statement. “That was important to us.” Gantry has built up its servicing business over the last few years and oversees a servicing portfolio of more than $8 billion. It bills the service as a new business model in which Gantry essentially oversees a CMBS loan from placement to the last loan payment. While other mortgage banks may offer similar services in other parts of the country, Von Berg said that Gantry is virtually the only one providing it in the California, Washington, Nevada and Arizona markets. The primary servicer’s role typically includes reviewing leases, taxes and insurance, conducting annual inspections and handling borrower requests, among other functions. CMBS borrower gripes about servicers in the past have stemmed from the notion that the servicers have often acted more like debt collection agencies and were ill-suited to handle all the moving parts associated with a commercial property, Von Berg said. What’s more, he added, servicers generally land the job by being the lowest bidder and have largely been considered unresponsive to borrower needs. He likened the situation to the buyer of an expensive high-performance sports car that later discovers that warranty work must be done by a cut-rate mechanic—whose primary business might be repossessions—that happened to be the lowest bidder among a pool of similar shops. “So many real estate investors have wrestled with the headaches of dealing with servicers over the life of their loan,” Von Berg said. “The general real estate community found it to be an untenable situation.”