Pearlmark, Waterton fund mezzanine loan for Tempe mixed-use project

Pearlmark, along with partner Waterton, last week funded a $53.2 million mezzanine loan that will help finance the development of the first phase of a planned mixed-use development in Tempe, Arizona. Carlos Slim’s Banco Inbursa funded the senior mortgage. 

The project, with a price tag of more than $400 million, is one of the largest developments to get the green light in the recent difficult financing market, Doug Lyons, a managing principal at Chicago-based investment manager Pearlmark, told Real Estate Capital USA.

The South Pier development was able to move ahead because of the depth of the sponsorship and the potential to transform a part of the Tempe market, which has been designated as a qualified opportunity zone, he added.

Sponsor The McBride Company is developing the 3.2 million square foot waterfront project, which is due for completion in the spring of 2026. Cantor Silverstein Opportunity Zone Trust, a joint venture with Silverstein Properties and Cantor Fitzgerald, and McBride Cohen, funded the necessary equity for the project’s first phase. 

Pearlmark first came across the deal through the capital markets group at JLL, which was working to arrange the financing. Due to the size of the transaction, Pearlmark reached out to Waterton about a possible joint venture on a mezzanine loan.  

“We were immediately struck by the high quality of the sponsorship in the equity and it was quite a large transaction,” said Lyons. “Historically, Pearlmark has been very active in the middle market but we are very capable of executing on larger transactions. On that situation, we were looking for a key strategic partner to come in.

“The sponsorship wanted a single senior lender and a concentrated lending team with one or two mezzanine lenders, enabling us to come to terms with Waterton as our partner.” 

While Waterton has not traditionally been a mezzanine debt or preferred equity investor, the firm has acquired distressed debt and has invested in Freddie Mac B-pieces, said Richard Hurd, managing partner, investment management at the Chicago-based manager. 

“It was an A-plus location with great sponsorship, plus the ability to partner with Pearlmark on the lending side. We also know the market well and were able to underwrite it,” Hurd explained. “Waterton is vertically integrated with both our construction management and property operation groups being key in helping us underwrite such a complicated development deal.” 

The first phase of South Pier at Tempe Town Lake will be comprised of three towers of 724 multifamily units, an 850-car parking garage, another 280 stalls of surface parking and 26,500 square feet of ground-floor commercial space. “This is a transaction that will be transformational for Tempe,” Lyons added.