We’ve acquired a large and well-located commercial property in Alexandria, VA, just outside Washington, DC, for approximately $74.4 million, all-in (Fundrise investors contributed $35.8 million of equity, while a $38.5 million senior loan was provided by Citizens Bank). The property is located in the main corridor for government contractors and minutes away from the site of Amazon’s much-anticipated HQ2 at National Landing in Arlington.
Business plan
The 250,000 square foot property consists of three separate buildings: a two-story class-B office, a retail strip center, and a flex-industrial warehouse. We plan to operate the property (more or less) as-is for the foreseeable future, while determining the appropriate time to begin entitling the property for future development.
The property was recently included in the City of Alexandria’s 2019 Eisenhower East Small Area Plan, which establishes “a vision for a vibrant new, urban, mixed-use community centered on the Eisenhower Avenue Metro Station.” The plan specifically increases the allowable density on the site to just over three million square feet — an over 1,190% increase in effective rentable square footage compared to existing.
At over 13 acres, this is one of the largest developable sites under the newly adopted master plan and is well-positioned to benefit from the area’s growing density, and specifically Amazon’s HQ2 as tenants seeking more affordable space continue to push south and west from National Landing and Old Town Alexandria.
This investment also offers downside protection based on its core infill location, unique infrastructure amenities, and relatively lower cost option to other office buildings in the area. It’s located directly across from the US Patent and Trademark Office (PTO) and is one of only two properties with a direct data connection to the PTO, making it particularly attractive to contractors and other vendors who work with the agency.
How might COVID-19 impact this investment?
Although the property has historically maintained a high occupancy rate and strong cash flow, we expect that over the next few months, so long as Virginia is under a shelter-in-place order with non-essential restaurants and retailers required to close, cash flow at the property will be reduced as many tenants are unable to pay rent. We intend to work with any such tenants on an individual basis to determine what (if any) rent relief is applicable, as well as put in place payment plans to ensure that those tenants are able to return to normal business operations while still fulfilling their lease obligations over time.
In our detailed stress test analysis published April 3, we assumed that extreme social distancing and/or shelter-in-place is required for 12 months and no retail tenants pay their rent for the entire 12 months except for those tenants that are considered essential services and the tenants with corporate credit. We also assumed that 20% of the office tenants do not pay rent, and there is no parking revenue for that period. In this extreme scenario, the property would still generate more than enough cash flow to cover the debt payments, specifically a debt service coverage ratio (DSCR) of 1.58.
Why we invested
- Stable local economy: The local economy benefits from the stability provided by the federal government. Additionally, the new Amazon headquarters, with its future 25,000 employees, is expected to support tenant demand and drive continued growth for both office as well as residential properties.
- Attractive financing: The acquisition was financed with a five year, 2.21% fixed rate interest-only loan, which we priced near the bottom of the interest rate environment, positioning it well to weather an extended economic downturn. The property had a debt service coverage ratio (DSCR) of 4.54 at acquisition on March 9, and a projected downside DSCR of 1.58 in our April 3 stress test analysis.
- Well-located near public transit: The Eisenhower Avenue Metro Station — the centerpiece of the neighborhood’s new development plan — is a five-minute walk from the property, and Amazon’s HQ2 is only four stops away. The proximity to both the station and the headquarters puts this 13-acre property squarely in the midst of the area’s anticipated growth.
As always, if you have any questions or feedback, please visit our help center or reach out to us at investments@fundrise.com.
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A brief note about how we’re navigating the coronavirus (COVID-19) pandemic
Though black swan events like the current coronavirus pandemic are impossible to predict, nearly every decade has experienced some form of significant economic disruption. Recognizing this, we’ve spent the last several years structuring our investments to withstand a sudden and prolonged period of distress. Given today’s extreme uncertainty, we have begun taking decisive action aimed at further fortifying your portfolio.
In the immediate term, we expect to limit most new acquisitions and instead anticipate holding more cash in reserve. We plan to focus on pushing our existing projects forward and, in rare instances, look to deploy strategically into properties — like this one — that we feel are particularly well suited to withstand near term stress or even benefit from the current disruption in the market. As we continue to monitor the ongoing effects of this disruption, we expect that over time having additional cash reserves on hand may allow us to capitalize on new opportunities that begin to present themselves.
