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Ashkenazy tapping CMBS for cashout refinancing of D.C.'s Union Station

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Billionaire real estate developer Ben Ashkenazy is tapping the commercial mortgage bond market to help refinance the leasehold interests in the office and retail space of Washington's Union Station.

His firm, Ashkenazy Acquisitions, has obtained $430 million in financing from two banks, Citigroup and Natixis: a $330 million first mortgage and $100 million in mezzanine financing. Proceeds were used to repay existing debt and fund a $130.9 million equity payout,

The first mortgage is being used as collateral for an offering of bonds called US 2018-USDC, according to rating agency presale reports.

Union Station is one of the property jewels in Ashkenazy's $12 billion commercial real estate portfolio, which also includes Boston’s Faneuil Hall Marketplace and South Station and a share in the Plaza Hotel in New York. The station, in the Capitol Hill District, is a transit hub for nearly 40 million visitors annually. In addition to office and retail space, it has nearly 64,000 square feet devoted for platform space for Amtrak’s regional and Acela rail services. Ashkenazy manages and leases 355,000 square feet of retail and office space.

Yet the 135,632 square feet of office space is currently vacant, after Amtrak moved from its longtime corporate headquarters from the station to new digs only a block away from the 40-50 Massachusetts Avenue NE address. According to presale reports, Ashkenazy is negotiating with several potential replacements for the new vacancy.

Amtrak is still Union Station's largest tenant by virtue of its platform operations, but it does not pay base rent on that space. It is, however, responsible for maintenance and upgrades in the platform and concourse areas for Amtrak commuters.

Due to the office vacancy, Morningstar Credit Ratings and S&P Global Ratings rated the deal using a valuation of only between one-third and one-fourth its $1.24 billion assessed value. S&P said that the deal was highly leveraged, with a 91.2% loan-to-value ratio (118.8% including the $100 million mezzanine loan to Ashkenazy Acquisitions outside of the trust), but Union Station has seeing rising sales volumes from tenants in each of the last five years and has had consistent lease levels.

While large equity payouts can be considered a risk factor, S&P noted that this one will partially recoup the Ashkenazy's acquisition and renovation expenses over the past decade.

The offered notes also include $146.09 million in Class A notes with preliminary triple-A ratings from Morningstar and S&P. The notes benefit from 53.4% credit support.

A $206.2 million interest-only Class X notes class and a $34.37 million Class B tranche (with 42.4% CE) are also rated AAA by Morningstar; S&P assigned lower ratings of A- to the interest-only bonds and AA- to the Class B notes.

Four additional subordinate note tranches (C,D, E and F) are also being marketed totaling $133 million, while Citi’s real estate funding arm will hold on to a $16.5 million variable-rate renewal tranche for risk-retention requirements.

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CMBS Citigroup