RICHMOND-A historic hotel here, the Hotel John Marshall, isbeing renovated into a mixed-use project--with the financingprovided through HUD’s Section 220 Urban Renewal Program andBerkadia Commercial Mortgage. Essentially a historic tax creditfinancing, the twist is that it is based on a master-lease. Thisstructure has only been used a handful of times--but appears to bemore commonplace as both lenders, developers and HUD’s own fieldoffices becomes comfortable with it.

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Typically, with historic tax credit transactions the tax creditpartner would own a majority of the entity in order to reap thebenefits of having the tax credit, explains Berkadia senior vicepresident David Blake. A new application of this model is to leaseall of the building to a master tenant, which gets the tax creditbenefit instead, he tells GlobeSt.com. So far, there have been onlya handful of such deals structured.

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Berkadia originated $40 million for the project, which has atotal cost of around $70 million. The loan is a fixed rate of5.05%, with a 40-year, fully amortizing loan term that will beginat the conclusion of the 20-month, interest-only constructionperiod. The borrower, an LLC whose principals include DominionRealty Partners LLC and Virginia Atlantic Development LLC, beganconstruction of the renovations a few weeks ago, shortly after thefinancing closed. Blake and colleague John M. R. Reed originatedthe loan.

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The hotel is located on approximately an acre at 101 N. 5thStreet. Eventually it will be redeveloped into a308,417-square-foot building, which will be dubbed the Residencesat John Marshall. It will consist of 238 apartments andapproximately 31,000 square feet of retail space. An additional23,000 square feet, including the Virginia Room, a historicballroom that will be restored to its former grandeur, will be usedfor catering and events.

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Erika Morphy

Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.