The Wharf's New Owner Lands $1B Mortgage
The Canadian pension fund that acquired D.C. megaproject The Wharf has secured a $1B loan from a trio of big banks to refinance the property's debt.
Wells Fargo, Morgan Stanley and Goldman Sachs originated the five-year, fixed-rate loan to owner PSP Investments, according to a Fitch Ratings report. PSP is ponying up nearly $60M in equity to close the deal to refinance the megaproject's existing mortgage.
PSP didn't respond to Bisnow's request for comment.
The banks are working to sell the loan as a commercial mortgage-backed security, and the deal is scheduled to close June 26, the Fitch report says. PNC Bank affiliate Midland Loan Services is slated to be the master servicer for the CMBS trust.
The loan is backed by 2.2M SF of mixed-use buildings, representing a majority of the waterfront development. It consists of 928K SF of office space, 447K SF of retail, 904 multifamily units, 412 hotel rooms, more than 2,500 parking spaces and a marina.
The collateral excludes some pieces of The Wharf that were sold or developed through separate partnerships.
PSP was a minority investor in The Wharf when it began construction, but in April it closed a deal to buy out developers Hoffman & Associates and Madison Marquette and become the sole owner. Bisnow reported in March that PSP was in talks to obtain a new loan on The Wharf along with the acquisition deal.
The 2.2M SF portion of The Wharf is appraised at $1.73B, giving the $1.025B mortgage a 59.2% loan-to-value ratio, according to Fitch.
The mortgage is being combined with $125M of mezzanine debt and $59.8M of equity from the owner to refinance the previous $1.15B of debt on the property and to fund other costs, including tenant improvements.
Hoffman-Madison secured an $800M refinancing deal on the project's first phase in June 2019, and then it obtained an $847M construction loan for the second phase in September 2019. The second phase delivered in 2022.
The property's office component is 93.4% leased to 18 tenants, according to the Fitch report. The largest tenant by far is law firm Williams & Connolly, which leases 313K SF with a 2038 expiration and has a base rental rate of $61.12 per SF, according to Fitch. The average rent of The Wharf's office tenants is $58.50 per SF.
The Wharf's retail is 92.1% leased, with tenants paying an average of $46.84 per SF, according to Fitch. The multifamily component was 90.8% occupied as of March, with an average rent of $2,310 per unit.
The loan issuers estimated the property's net cash flow at $103.7M, but Fitch's stressed net cash flow analysis pegged it at $86.6M. The difference is due to the capitalization rate each party applied to the property, with Fitch saying it used an 8.5% cap rate.
Shares in the CMBS trust are broken into five classes of risk, with the $446M in Class A certificates expected to be rated AAA by Fitch.
