$243M Financing Package Arranged for Trophy Office Building in DC
By Barbra Murray, Contributing Editor
Portals III, a premier 509,700-square-foot office tower in Washington, D.C., has been refinanced to the tune of $243 million. Commercial real estate services firm Cassidy Turley arranged the deal on behalf of the borrower, Republic Properties Corp.
Portals III is not just any office building, it’s a trophy office building within a 2 million-square-foot, mixed-use project that holds the distinction of being Washington, D.C.’s largest privately held development. Lenders took note. Five banks saw fit to unite and provide Republic with the financing in a senior debt structure. Additionally, a private equity firm supplied a mezzanine loan and a national pension fund advisor took a preferred equity position.
The property has a handful of desirable features that, combined, would attract lenders, but its occupancy level is not one of them. Despite an enviable tenant roster of government agencies and private sector businesses, the 10-story building is only 68 percent leased. While Washington, D.C., continues to be one of the leading office markets in the country, it has not been an easy year. Dampened by the pre-election uncertainty regarding the future office needs of the federal government, the city’s office market is expected to experience increasing vacancies through 2013, with the vacancy rate climbing to 11 percent in 2012 and 11.3 percent the following year, according to a Cassidy Turley report. The increases will follow a vacancy rate of 10.4 percent in 2010 and 2011.
Current market conditions are not as impressive as they were a couple of years ago, which does not exactly bode well for Portals III’s stabilization; however, the Class A tower has other advantages that proved fruitful in the pursuit of financing.
“The fact that we could bring this many capital sources in on a single closing of this magnitude in this challenging market is a testament to the strength of The Portals development and its sponsor, Republic Properties,” said David Webb, senior managing director and principal with Cassidy Turley.
Republic will utilize the majority of the proceeds from the bridge financing to refinance the existing loan on the property, and the remaining funds will be applied toward leasing costs.