Rezoning the Key at Marque at Heritage Hunt
- Nov 15, 2010
Gainesville, Va.–Seniors housing fared better than most commercial real estate sectors during the economic downturn, but that fact did not prevent the credit markets from giving seniors housing borrowers the cold shoulder. Diversified Investment Associates faced such a challenge when it needed to refinance The Marque at Heritage Hunt, a luxury apartment community for the 55-plus crowd in Gainesville, Va., but a little rezoning and a lot of support proved to be the solution.
Diversified Investment Associates developed The Marque in 2006 at a cost of approximately $37 million, and the age-restricted community performed very well. Located at 13550 Heathcote Boulevard, across from the affluent Heritage Hunt community, the 200-unit property lured residents with a 10,000 square-foot amenities component consisting of offerings that are both highly coveted and rarely available at a seniors apartment development. Among the long list of extras are a library, game room, computer room, movie theater, hair salon and café. With other benefits such as housekeeping and concierge services, The Marque earns its title as the only luxury resort-style rental community in Prince William County.
Impressive features and promising lease-up did not carry any weight with lenders when Diversified Investment Associates was in the market for a loan in 2009. “As the market began to crumble, our absorption fell and that left us with a project that was performing, but it couldn’t meet the initial goals,” Louis Siegel, project manager and principal with Diversified Investment Associates, tells MHN. “What was a market that lenders had been throwing money at became a market that lenders didn’t want to touch because they couldn’t sell the paper; it didn’t matter if the property was performing relatively well. It was 55 percent leased and in good times, at 55 percent, they would have thrown money at you.”
Independent-living apartment assets were no longer popular in the credit market. “With the age restriction, it limited the number of potential lenders, so the people we were left with were essentially vultures,” he says. “We had to refinance the property, but we couldn’t do it with the age restriction in place.”
With debt maturity approaching, Diversified Investment Associates got creative. The company approached Prince William County officials for a helping hand–a helping hand in the form of a removal of the age restriction at The Marque. Lenders were just not warming up. The 55-and-over concept needed to change if the company was going to have any chance of securing reasonable financing. It was a bold request, considering that seniors housing properties are revenue positive for local government; they are attractive because they reduce the overall demand for services such as water and schools.
But the county was not the only one that needed to be sold on the idea. “We met with the residents in the property’s lounge and said we need to do this in order to maintain our level of service for you,” Siegel explains. “We also went to the adjacent community, Heritage Hunt. They all agreed to support rezoning. What we learned in this process is that residents are more concerned about maintaining the level of service than age restrictions–and the County got it, they understood. Prince William County recognized that the planning goal had been achieved; the goal was to keep seniors in the community. The Marque was performing well, but unless the age restriction had been dealt with, it may have created tremendous hardship and defeated the purpose of the original planning.”
Prince William County saw the big picture and honored Diversified Investment Associates’ request. “To the best of my knowledge, there is no other age-restricted rental property in the Mid-Atlantic that has achieved a removal of the age restriction from a state or county once the property was put in service.”
It did the trick. Pembrook Capital Management L.L.C. orchestrated a $31.2 million first mortgage loan with a two-year term and two six-month extensions to refinance the existing debt on The Marque. And seniors are still coming–but now they are joined by young professionals and families who also want to take advantage of the bevy of amenities that come with the upscale rental community. “The property is performing 100 percent better this year than it did last year,” Siegel said. The occupancy level now stands at approximately 70 percent, and Diversified Investment Associates expects the property to reach stabilization in the first half of 2011.