RICHMOND-A historic hotel here, the Hotel John Marshall, is being renovated into a mixed-use project--with the financing provided through HUD’s Section 220 Urban Renewal Program and Berkadia Commercial Mortgage. Essentially a historic tax credit financing, the twist is that it is based on a master-lease. This structure has only been used a handful of times--but appears to be more commonplace as both lenders, developers and HUD’s own field offices becomes comfortable with it.

Typically, with historic tax credit transactions the tax credit partner would own a majority of the entity in order to reap the benefits of having the tax credit, explains Berkadia senior vice president David Blake. A new application of this model is to lease all of the building to a master tenant, which gets the tax credit benefit instead, he tells GlobeSt.com. So far, there have been only a handful of such deals structured.

Berkadia originated $40 million for the project, which has a total cost of around $70 million. The loan is a fixed rate of 5.05%, with a 40-year, fully amortizing loan term that will begin at the conclusion of the 20-month, interest-only construction period. The borrower, an LLC whose principals include Dominion Realty Partners LLC and Virginia Atlantic Development LLC, began construction of the renovations a few weeks ago, shortly after the financing closed. Blake and colleague John M. R. Reed originated the loan.

The hotel is located on approximately an acre at 101 N. 5th Street. Eventually it will be redeveloped into a 308,417-square-foot building, which will be dubbed the Residences at John Marshall. It will consist of 238 apartments and approximately 31,000 square feet of retail space. An additional 23,000 square feet, including the Virginia Room, a historic ballroom that will be restored to its former grandeur, will be used for catering and events.