A class B-/C office building located in a Class A location in mid-town Phoenix constructed in 1960, is 40 % vacant.  Market vacancy is 12% for Class A buildings and 20% for class B. The prospective new Buyer in under contract to buy this property for $27 million. The gross area of the property is 150,000SF distributed on ten (10) floors. The developer wants to reposition the property into a Class A-/B+ office building and sell it once stabilized within 5 years.

Purchase Price            $180/SF X 150,000SF            $27,000,000

Building CapEx          $  80/SF X 150,000SF            $12,000,000

TI -New Leases          $ 60/SF X 60,000SF               $  3,600,000

TI- Renewals              $ 20/SF X 90,000SF               $ 1,800,000

Commissions              $ 10/SF X 60,000SF               $     600,000

Soft Costs                   $ 100/SF X 150,000SF           $ 15,000,000

Total Project Cost       $400/SF                                  $ 60,000,000

 

What kind of loan for this property in Phoenix would you select, a CMBS conduit loan or one from a Portfolio Lender? 

Discuss in detail the pros and cons of each kind of loan?