Somera Road Nabs $152M for DC-Area Distressed Office Complex Acquisition

In two separate transactions, Voya Investment Management and Bridge Investment Group provided debt for a portion of Somera’s $215 million purchase of the eight-building complex

reprints


New York-based private equity real estate investment firm Somera Road has funded part of its largest purchase to date with $152 million in bridge debt from Voya Investment Management and Bridge Investment Group, Commercial Observer has learned. 

SEE ALSO: The Natural: Ian Ross’ Somera Road Is Buying Your Distressed Real Estate

The financing helped cover a part of Somera’s $215 million purchase of a distressed eight-building office complex — once owned by Vornado Realty Trust — in the Bailey’s Crossroads neighborhood of Falls Church, Va., just a few miles west of downtown Washington, D.C. The sale and financing closed on Oct. 30; Cushman & Wakefield’s (C&W) Dave Dorros brokered the sale, according to information from Somera. 

Voya and Bridge Investment’s bridge loans were for the purchase of the two main assets at the complex, while the remaining six buildings on the site were all equity purchases, according to Somera founder and principal Ian Ross; he said his firm is planning an eventual office-to-multifamily conversion of the remaining six properties. 

Bridge Investment provided $80.2 million for the purchase of One Skyline Tower, a 26-story, roughly 512,000-square-foot office tower on the site at 5107 Leesburg Pike. The debt was secured by C&W managing director Michael Zelin out of the firm’s Washington, D.C., office. 

Voya provided a $72.1 million, fully funded bridge loan for the acquisition of Seven Skyline, a 426,000-square-foot office building at 5275 Leesburg Pike; Somera has tapped OTJ Architects to lead a renovation of Seven Skyline’s lobbies and a white boxing and repositioning of portions of the space into speculative suites, according to Ross. This financing was arranged by New York-based AKS Capital Partners co-founders Aaron Appel, Keith Kurland and Jonathan and Adam Schwartz.

“We explored both CMBS and bridge financing on [One Skyline Tower] … Ultimately we went with a bridge lender because they provided a more flexible structure to help with the execution of our business plan,” Ross told CO in a statement. “[Seven Skyline] was always going to be a traditional bridge loan with a clear value-add story. We have some immediate upgrades planned (lobby, spec suites, second floor patio, landscaping, [among other improvements]) and a vacant floor that we are actively in the process of leasing. We have already begun the process to white box the space for new tenancy.”

The 2.6-million-square-foot complex — which was constructed over time from the early 1970s to the early 2000s — was sold to Somera by servicer CWCapital Asset Management out of three legacy commercial mortgage-backed securities (CMBS) trusts that held the assets following a previous foreclosure that occurred in 2016. This deal marks Somera’s first foray into the D.C. market, led by the firm’s head of development, Joe LeMense, who previously spent around a decade working in the market with Douglas Development Corporation and the Shooshan Company

Currently, One Skyline Tower is fully leased (99 percent, according to Ross) to the U.S. General Services Administration (GSA), while Seven Skyline is 75 percent leased and anchored by the U.S. Fish and Wildlife Service, which consolidated its operations into 183,000 square feet at the building in 2014, according to a GSA press release from September 2013.

Somera has partnered with Highland Square Holdings and The Wolff Company to spearhead the planned multifamily conversions of the site’s other six office buildings. Ross said the six remaining buildings he’s targeting for a repositioning are around “15 percent occupied and are well positioned for conversion to multifamily or a heavy value-add office repositioning. The entire complex is located in an opportunity zone making both options very appealing.”

CBRE, which has handled the management and leasing of the complex since the properties were foreclosed on in 2016, have been retained in their roles by Somera. 

In 2007, the “Skyline Portfolio” took roughly $678 million in financing into three separate CMBS transactions — BACM 2007-1, JPMCC 2007-LDPX and GECMC 2007-C1 — at an initial valuation of over $870 million, according to Ross and information from Trepp; that’s a stark difference from the $215 million price tag Somera secured for it. 

Near the end of 2016, Vornado, facing vacancy pressure and unable to satisfy its debt service, allowed the massive campus to go into foreclosure after having stopped making payments earlier that year. In December 2016, the site was put up for auction at the Fairfax County Circuit Court, but according to a report at the time by the Washington Business Journal, no one appeared at auction to bid on the property; it was then sold for just $200 million to a representative of the special servicer. 

Representatives for both Bridge Investment and Voya did not immediately respond to inquiries.