Deutsche Bank Securities and Cantor Fitzgerald & Co. filed a prospectus related to COMM 2012 CCRE3 Mortgage Trust, which details the $55 million loan on 425 7th Street and 800 F Street in Washington, DC.
The $55 million 425 7th Street and 800 F Street loan is a fixed rate loan secured by the borrower?s fee simple interest in 138,374 square feet of office and retail space, along with 15,083 square feet of multifamily space located at 425 7th Street, NW and 800 F Street, NW in Washington, DC.
The properties were appraised at $83 million in June 2012.
The borrowers are Jemal?s Douglas Stereo L.L.C. and Jemal?s Historic Row L.L.C., single purpose District of Columbia limited liability companies structured to be bankruptcy-remote.
The sponsors of the borrowers and the nonrecourse carve-out guarantors are Douglas Jemal and Norman D. Jemal. The sponsors are required to maintain an aggregate net worth of $75 million throughout the 425 7th Street and 800 F Street Loan term.
Douglas Jemal founded Douglas Development Corp in 1985. His son, Norman D. Jemal, is a principal and senior vice president of the company. Norman D. Jemal has negotiated and leased over five million square feet throughout his career with a cumulative value of over $1.0 billion. Douglas Development Corp has a current portfolio which consists of over eight million square feet.
Due to a 2004 conviction for wire fraud, the 425 7th Street and 800 F Street Loan documents prohibit Douglas Jemal from controlling or acquiring any direct or indirect interest in any borrower, SPC party or key principal other than the 20.3% interest he owned at the loan's closing date.
Jemal's probation related to the conviction was terminated in 2009 and included a payment of a $175,000 fine.
The 425 7th Street and 800 F Street Properties are comprised of two properties located in the East End market of downtown Washington, DC, each within four blocks of the National Mall and two blocks from the Verizon Center. The 425 7th Street and 800 F Street Properties consist of 99,598 sq. ft. of retail space, 38,776 sq. ft. of office space and nine multifamily units totaling 15,083 sq. ft.
Excluding the multifamily units, the office and retail portions are 80.4% occupied as of July 31, 2012.
425 7th Street is a 34,781 sq. ft. mixed use property located by the Verizon Center between D and E streets. The tenant mix includes 30,598 sq. ft. of retail space and 4,183 sq. ft. of Class A/B office space.
The building was built in 2005 and represents the retail portion of a larger project known as the Jefferson at Penn Quarter Development.
This project was built subject to a Reciprocal Easement Agreement. Each unit owner owns a fee simple interest in its property subject to the terms of the REA. The REA requires that a lender holding a mortgage on any property subject to the REA be given notice and an opportunity to cure defaults in the event an owner of a unit defaults on its obligations in the REA. In addition, the owners association under the REA is permitted to charge assessments to the unit owner and failure to pay such assessments may result in a lien on the 425 7th Street Property subordinate to the lien of the related mortgage.
The total development contains four separate components subject to the REA, including the retail which is collateral for the 425 7th Street and 800 F Street Loan, a 450-space parking garage, the Penn Quarter Theatre and a residential portion which contains 255 residential apartments.
The sponsors acquired 425 7th Street in June 2007 for $21.4 million ($615 PSF).
At the time of acquisition, 425 7th Street was approximately 36.3% occupied and the sponsors subsequently leased 18,600 square feet to Carmine?s DC, LLC at a base rent of $43.01 PSF.
800 F Street is a mixed use development with 34,593 sq. ft. of Class A office space, 69,000 sq. ft. of retail space and nine multifamily units comprising 15,083 sq. ft., and is located by the Verizon Center between 8th and 9th streets.
The building was built in 1875 and acquired by the sponsors in 1999 for approximately $4.0 million ($34 PSF, including the multifamily square footage).
The sponsors performed a total redevelopment of the property in 2002 for $19.5 million ($164 PSF, including the multifamily square footage), which created approximately 34,000 additional square feet of class A office space while maintaining the historic fa?ade. Upon completion of the renovation, the sponsors leased 69,000 sq. ft. to The Spy Museum, the first paid attendance museum in Washington, DC.
In January 2012, The Spy Museum exercised its option to renew for an additional term of five years, and in June 2012, the sponsors reached an agreement to allow The Spy Museum to terminate their lease on two restaurant spaces totaling 11,525 sq. ft.
Within two months, the spaces were leased to Shake Shack and Bajaj Restaurant.
Bajaj Restaurant?s rental rate of $48.08 PSF is approximately 12.0% higher than The Spy Museum rental rate of $42.94 PSF, and the Shake Shack rental rate of $124.80 PSF is approximately three times The Spy Museum rental rate.
In addition, the 800 F Street property has averaged 95.8% occupancy since 2002.
The drop in occupancy to the July 31, 2012 rate of 79.0% (including the multifamily square feet) is attributed to the FBI recently vacating its 18,467 square foot space.
The Phase I environmental reports dated June 18, 2012 recommended no further action at the 800 F Street property and recommended the closure of an open case involving an underground storage tank at the 425 7th Street property. The storage tank has been removed from the property and the borrower is required to have the case closed and satisfied with all applicable government authorities within 60 days of loan closing.
The Spy Museum (57,475 sq. ft.)
Located at 800 F Street, The Spy Museum is a for-profit museum dedicated to the field of espionage, showcasing gadgets, weapons, and technology used for espionage throughout the world, with numerous visitor-interactive stations located throughout the exhibits. The Spy Museum has been at 800 F Street since 2002 and recently exercised its 5-year extension option, extending its lease through July 31, 2017. The Spy Museum has two 5-year extension options remaining, exercisable upon six months prior notice, with rent increasing at a rate equal to the annual CPI increase and in no event less than the preceding year?s base rent. In addition, beginning 18 months prior to the expiration of The Spy Museum lease, excess cash will be swept into a lender controlled account to cover potential releasing costs.
Carmine?s DC, LLC (18,600 sq. ft.)
Located at 425 7th Street, Carmine?s DC, LLC (?Carmine?s?) is a family-style Italian restaurant, with additional locations in New York City, Atlantic City, New Jersey, and Nassau, Bahamas. Carmine?s took occupancy in 2009 and has a lease through August 2025. For the trailing twelve months ended April 2012, Carmine?s recorded approximately $8.6 million in sales ($460 PSF) with an occupancy cost of 9.4%. Carmine?s has three 5-year renewal options at 90% of fair market rent, exercisable upon six months prior notice.
Bajaj Restaurant (8,320 sq. ft.)
Ashok Bajaj signed a lease for 8,320 sq. ft. at 800 F Street that began August 1, 2012 and plans to open one of his restaurants in such space in mid-2013. The previous tenant was a restaurant leased by The Spy Museum. Ashok Bajaj has owned and operated award-winning restaurants in London and the United States for over 25 years. His restaurants and chefs have won numerous RAMMYs presented by the Restaurant Association of Metropolitan Washington, and have also been nominated for prestigious awards by the James Beard Foundation, including Best Chef-Mid Atlantic and Rising Star Chef. Nationally, he is a three-time James Beard Foundation nominee for ?Restaurateur of the Year?. Ashok Bajaj?s restaurants include the Bombay Club, 701, The Oval Room, Ardeo, Bardeo, and Rasika, which is located at 425 7th Street. The Bajaj Restaurant will begin paying rent on the earlier to occur of (i) the opening of the restaurant and (ii) September 2013. A rent reserve was established at closing to cover the rental payments through September 2013.
Within a 3-mile radius, the 2012 population is approximately 312,349, and there are approximately 150,126 households with an average household income of $84,547.
425 7th Street consists primarily of retail (88.0% of 425 7th Street NRA), with only one office tenant that contributes to rent. The appraiser identified 31 retail properties within the immediate area with 207,221 sq. ft. of rentable area. Vacancy rates averaged 3.2% with average asking rent of $32.85 PSF as of June 2012.
425 7th Street has had occupancy above 93.4% since mid-2010, and the appraiser determined a stabilized vacancy of 5.0%. Due to location, the appraiser also concluded that the 425 7th Street property should generate rents above the average market rental rate. Restaurant rents in the immediate area are some of the highest in the region.
Recently signed restaurant leases include Fuel Pizza at $64.00 PSF, Proof at $85.00 PSF, and Pi Pizza at $65.00 PSF, while renewals include Legal Sea Foods in 2008 at nearly $70.00 PSF, Fuddruckers in 2011 at over $120.00 PSF and Matchbox at $75.00 PSF.
800 F Street is made up of three retail spaces (66.6% of 800 F Street NRA, excluding the multifamily portion), including the 57,475 sq. ft. Spy Museum, and approximately eight office spaces (33.4% of 800 F Street NRA, excluding the multifamily portion).
The appraiser identified 120 retail properties within the immediate area with total NRA of 895,069 sq. ft. Vacancy rates averaged 4.0% with average asking rent of $31.85 PSF as of June 2012. The appraiser also identified 199 office buildings containing approximately 42.4 million sq. ft. in the East End submarket with a vacancy rate of 9.2% and an average asking rent of $52.76 PSF, all as of Q1 2012.
In addition, the appraiser determined a stabilized vacancy of 5.0% for 800 F Street, compared to the retail market vacancy of 4.0% and the office market vacancy of 6.4%.
800 F Street was 100.0% occupied from 1994 through 2000, and has averaged 95.8% occupancy since 2002.