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CMA
January 11, 2019  

Pre-Lease in Hand, Builder Eyes Big DC Loan

A joint venture is back in the market for $830 million of financing to expand a sprawling mixed-use complex in Washington.

The team of PSP Investments, Madison Marquette and PN Hoffman is seeking a construction loan with a term of 5-7 years for the second phase of the project, called The Wharf, on city-owned land in the Southwest Waterfront neighborhood. Eastdil Secured is pitching the assignment to lenders.

The proceeds would go toward developing seven buildings encompassing 577,000 square feet of offices, 105,000 sf of retail space, 255 apartments and 96 residential condominiums, plus a 130-room hotel. Also included: more than 1,000 underground parking spaces and 226 boat slips.

The 24-acre site stretches for about a mile along Maine Avenue SW, between Interstate 395 and Seventh Street. The first phase, which opened in stages in 2017 and 2018, consists of two office buildings, three hotels and 861 residential units in four buildings: two with apartments and two with condominiums. Also included is The Anthem, an auditorium that seats 6,000.

Last summer, the development group asked lenders for quotes on about $800 million of debt for the second phase, but no deal resulted. The decision to hold off and relaunch the process is likely tied to leasing: In December, the partnership announced that law firm Williams & Connolly has signed a 15-year lease on 300,000 sf at The Wharf and will move its headquarters there. With that, more than 50% of the office space is pre-leased, an important metric for lenders evaluating a deal.

PN Hoffman, a local developer, was awarded the right to develop the project in 2006, on land leased from the District of Columbia for 99 years. However, by the time construction was about to kick off, the recession had set in and financing was difficult to arrange. Madison Marquette, also based in Washington, has been a partner in the project since about 2008. It’s unclear when PSP, a Montreal pension investment manager, joined the group.

Construction of the first phase began in 2014. That $1.4 billion component was financed in part by a $400 million debt package provided by a syndicate of banks. Wells Fargo, the administrative agent, was joined by Bank of America, BB&T, M&T Bank, SunTrust and Washington-based United Bank. The District of Columbia issued $145 million of bonds backed by cashflows generated by the property. The overall development has received significant public support, involving about $200 million in tax-increment financing and grants.

In November, the partnership began seeking a five-year mortgage of $800 million to refinance the first phase. Eastdil is also marketing that assignment.

The Wharf is on the Washington Channel waterfront, across from East Potomac Park. Along with the commercial space, it has a marina, plazas and other public areas, and offers watercraft rentals and an outdoor concert series. The surrounding area is transforming into a “live-work-play” neighborhood and a dining and entertainment destination. Water taxis connect it to the Georgetown neighborhood and other nearby destinations.