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.

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.

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.