UPDATED, Oct. 25, 2022, 5:20 p.m.: IQHQ has secured nearly $600 million in construction financing for Elco Yards, the REIT’s office and life science campus project in Redwood City touted as the first large-scale development of its kind in the city’s core.
The $581 million injection of capital means the under-construction project is fully funded, IQHQ’s Jonathan Praw wrote in an email. The firm is redeveloping six downtown blocks along Redwood City’s Caltrain corridor into an office and life science district with 540 apartments, more than a quarter of which would have rents considered affordable by the city. It’s constructing Elco Yards’ nearly 600,000-square-foot office and life science component on spec, with the first of four buildings slated for delivery in the final quarter of 2024, said Praw, IQHQ’s chief investment officer.
The five-year loan was co-originated and co-funded by KKR Real Estate Finance Trust and KKR affiliates, according to the trust’s third-quarter earnings release. The trust invested in only a quarter of the total loan, said the release, which didn’t disclose the names of the other entity or entities that supplied the remaining capital. The collateral on KKR’s floating-rate senior loan is the project’s commercial component, according to its latest earnings results.
The deal between IQHQ and KKR shows that the capital markets remain bullish on certain office and life science projects despite uncertainty for both sectors. Elco Yards represents IQHQ’s bet that office and life science companies will want to be downtown and within walking distance of a train stop, neither of which has been in much demand in recent years. The firm acquired the 8-acre project site from J.P. Morgan and Greystar last year for nearly $43 million. It has partnered with Greystar on the development’s three-building residential portion.
Elco Yards includes space for a childcare center and room for what Greystar initially envisioned as a family-friendly use on one commercial building’s ground floor, amenities that differentiate it from other campus projects in the region — which may help IQHQ lure prospective tenants back to the office. It was already underway on completing two commercial buildings’ underground garages before securing the KKR loan. The project’s apartments are also coming along: a 38-unit, fully affordable building has “achieved its final form,” according to a Sept. 30 post by Walking Redwood City, a website that tracks development there.
The five-story building is slated for completion next summer, said a Walking Redwood City report from earlier this year.
This story has been updated to include emailed responses to questions from Jonathan Praw, IQHQ’s chief investment officer.