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Refinance

 

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Gateway Center, Providence, RI

Region: Northeast
 Asset Type: Urban Office
Size: 117,981 sf
Date Purchased: May 23, 2013
Sponsor/ GP Capital: Albany Road Real Estate Partners
LP Investors: Individual High Net Worth and Family Office Investors
Lender: BankRI; $10,000,000; 3-year fixed-rate debt (with two, one-year extension options) with three years of interest-only payments; 3.23% all-in rate

Property Details and History

Gateway Center (the “Property”) is a 117,981 square-foot, class-A, downtown office property, with structured parking for 150 cars.  The Property is located in the Capital Center submarket and is located directly across the street from the Providence Place Mall and Rhode Island’s State Capital Building.  The Providence Train Station is directly adjacent to the property, which provides MBTA Commuter Rail access directly to downtown Boston and is a stop on Amtrak’s Northeast line that runs from Boston to Washington, DC. Gateway Center, which is minutes from I-95, was constructed in 1990 at a cost of $23,000,000, originally as a build-to-suit for American Express. It was subsequently occupied by Boston Financial Data Services and Fidelity Investments.

In 2006, a partnership comprised of Edgewood Capital and Commonwealth Ventures purchased the property for $20,000,000 and financed the acquisition with a CMBS loan from Wachovia Bank for $18,800,000.  In 2009 Fidelity moved their operation to their Smithfield Campus and the property became 100% vacant. In September 2009, the building was foreclosed upon by Wachovia’s representative, US Bank. Using funds collected under the Wachovia loan agreement, the property was converted from a single to a multi-tenant building and over 100,000 square feet of lease deals were completed. Having brought occupancy back up from 0% to 76%, CW Capital, the servicer of the loan, hired CBRE to market the property for sale.

Albany Road ultimately acquired Gateway Center for a price of $13,200,000 ($112/sf), roughly a 55% discount to replacement cost.  The pricing was also 35% below the $20,000,000 that the property fetched when it last traded.

When Albany Road contracted the property, it was 78% leased (on its way to 86% by the time the transaction closed) to a diverse, credit-worthy roster that included TIAA-CREF, Admirals Bank, The Big East Athletic Conference (now the American Athletic Conference), and Andera. During Albany Road’s first two years of ownership, the property NOI improved by approximately 65%, from $925,000 to $1,500,000 annually.  This NOI improvement was due largely to (1) a successful lease-up campaign that increased occupancy from 86% at closing to 97%, (2) a complete overhaul of garage management and operations, which improved net cash flow of this undervalued building component from $80,000 to $325,000 annually, and (3) a favorable appeal of real estate taxes, which reduced the assessed value of the property from $21,400,000 to $13,900,000.

As a result of Albany Road’s value-add initiatives highlighted above, Gateway Center was refinanced 28 months after being acquired.  The $15,600,000 in loan proceeds from Northern Bank & Trust were used first to retire the existing BankRI debt, and then to return 77% of investors’ initial equity.  A $1,000,000 reserve was funded at this time as well, providing the investment with any cash needed to fund future base-building or tenant-related capital needs.