Commercial Observer – Rubenstein Mortgage Capital Lends $29M on DC-Area Office Property

By Cathy Cunningham

Rubenstein Mortgage Capital, the debt investment arm of Rubenstein Partners, has provided a $29 million first mortgage for Reston Metro Center One, a 124,076-square-foot office property located in the Reston/ Herndon suburban submarket of Washington, D.C., Commercial Observer has learned.

HighBrook Investors acquired the asset — at 12120 Sunrise Valley — via a note purchase and is now repositioning the asset into a Class A office building. RMC’s loan finances HighBrook’s acquisition and alo funds future leasing costs.

Phillips Realty Capital advised HighBrook Investors on the financing.

“We try to be very deliberate about the opportunities we’re pursuing and are very focused on sponsorship and location, even more so than we have been in the past because valuation is such a moving target today,” Ashesh Parikh, who oversees debt investments for RMC, told CO.

The deal came to RMC right around the onset of the pandemic in early March. “HighBrook was in discussions with the previous lender, Alliance Bernstein, to buy the note and wanted a lender who understood the business plan and could close quickly,” Parikh said. “For us, three things appealed; The  quality of the sponsorship, the knowledge of the submarket in Reston and the property itself. We had looked at it when it was for sale in previous iterations and felt very comfortable with the sponsor’s basis.”

The property sits in close proximity to Loudoun County’s “Data Center Alley” as well as a rich talent base, which should make it an appealing office location for TAMI tenants. Additionally, large-block Class A office space is limited  in Reston, particularly with modern amenities and walkability to Metro transit, giving Reston Metro Center One a competitive advantage. HighBrook will construct a direct pathway to the Reston Town Center Metro station, which is expected to open in 2021.

“We expect that, as local demand for cloud computing and other related businesses climbs, so too will providers’ need for high-quality office space,” Parikh said. “HighBrook’s repositioning experience should serve them well in re-inventing this asset with a plan that caters to the local tenant base and creates a Class A environment, and we’re pleased to support their business plan with this debt financing package.”

As part of  HighBrook’s capital improvement program, indoor-outdoor tenant lounge space will be added on campus,in addition to a conference center, a café, and a renovated fitness center. A new 80,000-square-foot Wegman’s grocery set to open nearby in 2022.

At a time where the supply of capital for transitional assets is limited to say the least, RMC continues to lend and has seen a variety of lending opportunities come its way.

“The first [scenario] is deals where a new lender is needed to step in, where borrowers were being priced through CMBS or a more traditional channel pre-COVID and then when the crisis started banks got skittish or the CMBS market shut down; I wouldn’t call it rescue capital, but something along those lines to get the deal to the finish line,” Parikh said. “Then, we’re seeing opportunities where debt is needed to bridge equity where a sponsorship fell apart or there was a recapitalization lined up. [In that situation] the remaining sponsor is putting in a little more equity and they want a lender who can go up to 70 to 75 percent [leverage].”

The third opportunity is — as in the case of this transaction — where sponsors had packages in the market pre-COVID and are now executing on their business plans and continuing with their financing as planned.

As for what office space may look like post-COVID, it’s too early to say, Parikh said: “But what attracted us, when we thought about how office space may be used, is that this is essentially a bite-sized office at 124,000 square feet, and with access to Metro. A tenant going to a new Class A building that’s secure and for use by only your staff is a great selling point.”

RMC is well-positioned to continue its lending activity as the market finds its feet post-COVID, Parikh said. “We are actively in the market. We have discretionary capital so unlike other debt funds we’re not reliant on capital markets to place it. We’re also active in core markets as well as new markets throughout the country,” he said, adding: “We are looking at loan acquisitions on a select basis but primarily focused on new originations today.”