400 Claremont squeaks through $160m refinancing just ahead of rate hike 

The sponsor locked in a $160m loan from Progress Capital just before the Federal Reserve raised rates by 75 basis points last week. 

400 Claremont Holdings closed a $160 million loan on a Jersey City, New Jersey, apartment complex just before the Federal Reserve raised interest rates by 75 basis points, timing that allowed the local manager to save about $16 million in financing costs over the term of the loan. 

The sponsor made a difficult decision to refinance existing debt on 3 Acres in an already-rising interest rate environment, said Leo Leyva, co-chair of the litigation and real estate departments at New York law firm Cole Schotz, who advised 400 Claremont on the deal. Progress Capital reportedly funded the loan.

“As we were watching what was happening with the energy industry, and with everything else going on, we made the decision that we were going to bite the bullet, good or bad, and rate lock,” Leyva said. “We were able to execute on an interest rate of about 3.8 percent. By the time we closed that loan, the interest rate had ticked up so dramatically that over the life of the loan it would have been a more than $16 million difference.” 

The sponsor will use the financing to refinance an existing construction loan on 3 Acres, a resort-style apartment complex at 400 Claremont Avenue in Jersey City. Located in a opportunity zone, the 629-unit complex includes health and wellness amenities that are rare for Jersey City’s West Side submarket. 

“Everyone knows about the Gold Coast of Jersey City. Everyone knows about the downtown waterfront. Well, the West Side of Jersey City used to be known as the Wild West. Our clients saw it as the new frontier,” said Leyva. 

Additionally, the property’s location in an opportunity zone will benefit the sponsor, particularly in a rising rate environment. “Under the opportunity zone laws, you can invest with very advantageous tax benefits, both gains from the sale of real estate as well as corporate stock,” Leyva said. 

Leyva fully expects more interest rate hikes, which means he is skeptical that borrowers will be able to secure an attractive refinancing. “If you rate lock today, you’re getting crushed,” he said. “More and more investors are going to now realize that they’re going to have no choice but to leave capital in the deal.” 

With an uncertain outlook, Leyva reflected on the timing of the deal. “Sometimes it’s nice to be lucky. But sometimes it’s good to be smart and lucky,” he said.