Argentic, Goldman Sachs Provide $93M CMBS Refi on New DC Mixed-Use Asset

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Argentic Real Estate Finance and Goldman Sachs have originated $93 million in commercial mortgage-backed securities (CMBS) financing to refinance a newly-built, 140,200-square-foot mixed-use office asset called The Liz in the nation’s capital, according to ratings agency analysis of the transaction.

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The 10-year, interest-only loan package, together with $1.8 million in equity from the borrower, Fivesquares Development, took out just under $85 million in existing debt, funded a $3 million earn out, covered nearly $5 million in outstanding tenant improvement and leasing commission costs and capital expenditures and finally, paid closing costs, as per information from Fitch Ratings. The deal would pay interest at a rate of 4.45 percent. And the $3 million earn out reserve will be applied once the asset reaches a 7.2 percent net cash flow (NCF) debt yield, the ratings agency said.

Argentic took $60 million of the overall loan total, while Goldman retained the remaining $33 million. The deal closed on July 10.

Argentic’s $60 million portion is being securitized in the Morgan Stanley-led, roughly $691 million MSC 2020-HR8 conduit CMBS transaction, per Fitch, which noted that Goldman’s additional $33 million not included in this securitization will be injected into one or more future transactions. Argentic’s appraisal set the value of the newly-built asset at $140.8 million, which makes for an underwritten 63.9 percent loan-to-value on this financing. 

Designed by D.C.-based CORE architecture + design, the project — which covers a full city block at 1701 14th Street Northwest in Washington, D.C. — finished a year ago last weekend, and as of this month, the property is still open and operating, according to Fitch. 

Fivesquares — co-founded and run by principals Andrew Altman and Ron Kaplan — erected an asset that comprises more than 57,000 square feet of office space, nearly 24,500 square feet of retail and also 77 apartment units spread across about 58,500 square feet. It’s location puts it within a two mile radius of sites such as The White House, The National Mall and the Smithsonian National Museum of American History as well as the renowned Georgetown University

According to Fitch, Fivesquares has locked in 10 fresh leases, including completely filling the retail and office portions since construction finished last summer. As of this month, the property’s residential aspect hasn’t yet reached stabilized occupancy; thirteen of the 77 units are vacant. 

Fitch highlighted the property’s strong tenancy, which was established in a relatively short period of time. Non-profit community health center Whitman-Walker Health System is the asset’s largest office tenant at 35,600 square feet, where it has established its new headquarters in partnership with Fivesquares. German government entity and non-profit Goethe Institut — an organization supporting German language learning abroad and promoting international relations — occupies a little under 22,500 square feet of office space, which is about 16 percent of the asset’s total square footage, on a lease that expires in October 2029; Goethe’s guarantor is of course the AAA-rated German government, as per Fitch. The retail portion features an Amazon retail shop, the tech giant’s cashier-less convenient store, which has leased 9,304 square feet — 11.4 percent of the commercial space — until November 2029. 

Elsewhere within the ground-floor commercial space are retail tenants Bluestone Lane Café, Sephora, Parachute, Scout and Paper Source, some of which were still in the process of building out their respective spaces as of June 29.