Moran & Company is the apartment expert, but not just because our professionals focus on apartments. It's because we are experts in all aspects of multifamily transactions, including ground leases, portfolio sales, complicated partnership structures, buy/sell provisions and all types of nuances potentially impacting value.
Neptune Marina is a development site on the water in LA’s Marina del Rey. It is fully entitled for the development of 526 apartment units and the redevelopment of 174 boat slips. Like all sites on the water in the Marina, the Neptune site was encumbered by a ground lease with the County of Los Angeles. That ground lease was originally executed in 1961 and, at the time we marketed this deal in 2016, had a remaining term of only 44 years. California state law forbids any governmental entity from signing or extending any lease beyond a date which is 99 years from its original execution which coincided with the 1960 expiry date. So developers and their investor partners could not count on a routine extension of this lease.
Neptune Marina is, without doubt, one of the most desirable apartment development sites anywhere in the country. However, the project was a very large project (estimated to cost over $300 million to build) that had to be developed with a prevailing wage agreement in place and would ultimately be subject to an affordable agreement for 15% of the units. Any prospective developer would be responsible for guaranteeing a very large construction contract and delivering market returns to his investor partner while there was still enough term on the land lease to provide debt liquidity to current and subsequent investors. Moran not only needed to find a developer partner with the track record and financial strength to support their guarantees under the contract. But that developer needed to come with an equity partner and construction lender in order to prove its ability to perform. Because of the seller’s long term ownership of this site and long term negotiations with the County over lease extensions and other County requirements, the new developer needed to “partner” in some way with the seller.
Because there were a limited number of developers that we believed had the track record and balance sheet sufficient to stand behind the necessary construction loan guarantee, Moran & Company recommended that we take this opportunity to a short list developers and present it to the decision makers from each development entity in their board room in a road show format. Each developer was walked through the merits of the site as well as the way in which the land lease impacted risks and returns. We highlighted the challenges of getting a construction loan this large and the credit required to execute such a construction contract. Through those discussion, we were able to discern which developers had the appetite and resources to partner with the seller, provide the construction guarantees and bring debt and equity to the table.
The lease on Neptune Marina was assigned to the new development entity in October of 2016.