Eastdil Gets $100M in Financing for Meridian’s Purchase of 3 Class A Office Towers

By Gail Kalinoski, Contributing Editor

Eastdil Secured arranged more than $100 million in financing for The Meridian Group’s acquisition of three Class A office towers owned by Science Applications International Corp. in the Northern Virginia submarket of Tysons Corner.

The real estate investment banking firm procured $105 million of debt financing and assisted Meridian in the equity component of the investment.

“We had exceptional interest from a broad array of investors and institutional partners for these offerings,” John Kevill, managing director of Eastdil Secured, said in a news release about the closing. “They were drawn by a unique opportunity to partner with an established ‘best in class’ operator in Meridian and invest in properties positioned to take advantage of the near-term growth in Tysons Corner fueled by Metro.”

The 18-acre corporate campus is on Route 7 at the new Greensboro Metro station, which is expected to open in early 2014. The three buildings – Towers I, II and III located at 1707, 1709 and 1710 SAIC Drive – have a total of 640,000 square feet on 3.4 acres adjacent to the station. The property is in an area called “The Hill” near the Tysons Galleria Mall.

Meridian, a real estate investment and development firm based in Bethesda, Md., announced the sale in May. SAIC, a defense contractor, will lease one building for seven years. Meridian will spend more than $20 million to renovate and reposition the other two buildings. Upgrades are planned for the lobbies and common areas, elevator cabs, HVAC systems, and pedestrian walkways and plazas near the Metro station. A fourth building will be demolished for redevelopment.

The purchase was funded through Meridian’s $160 million discretionary real estate fund, Meridian Realty Partners I. The firm closed the fund, one of the largest equity funds focused on real estate in the Washington, D.C., region, in January. The fund could be leveraged to buy more than $500 million worth of properties. Meridian already used the fund to buy three Northern Virginia assets – One Ballston Plaza, a 148,000-square-foot building in Arlington; Cameron Run, a 144,000-square-foot building in Alexandria; and Tysons Technology Center, a 280,000-square-foot property also in Tysons Corner.

“Our fund, together with co-investment from our limited partners, provided $75 million of equity for the towers’ acquisitions and repositioning, together with the first anticipated land takedown,” Gary Block, the Meridian managing director who led the SAIC transaction, said in the news release. “We are excited to move forward with this acquisition, which represents a unique opportunity to capitalize on the growth of Tysons. It is a tremendous investment opportunity thanks to the repositioning potential and its ideal location next to Metro and a whole host of amenities.”

Block thanked SAIC and also credited Jeffrey Zell, president of JM Zell, who served as corporate advisor to SAIC and put the transaction together.

David Cheek, co-founder and president of Meridian, said the firm has already been contacted by several high-profile tenants.

“With a $20 million renovation to rebrand and reposition the complex, these towers will cater to tenants seeking first-class pace at highly competitive pricing,” Cheek said in the release. “We expect significant demand from tenants in the area and throughout the D.C. region.”

The deal included redevelopment rights. Plans call for Meridian to build more than 1.3 million square feet of residential development, more than 1.1 million square feet of additional office space, a 400-room hotel and about 200,000 square feet of retail.

Bruce Lane, co-founder and executive vice president of Meridian, which in 20 years has acquired more than 7.5 million square feet of office, industrial, retail and hotel properties and land with a value exceeding $2.5 billion, described Tysons Corner as “one of the most coveted areas in the country.” He said the Metro expansion further into the suburbs and high occupancy highway lanes are making the region, already one of the nation’s top office and retail markets, more attractive.

While the office market continues to be sluggish in Northern Virginia as it deals with the effects of ongoing federal and corporate downsizing, Tysons Corner is seeing activity because of the Metro expansion. More than 830,000 square feet of office development is under way in Tysons Corner, the most of any of the region’s submarkets, according to CBRE’s Northern Virginia Office Marketview 2Q 2013 report. CBRE noted there has been leasing activity in Northern Virginia’s office markets, but many companies are taking less square footage and seeking shorter leases leading to a 16.1 percent overall vacancy rate. Class A overall rents have inched up slightly to $32.28 per square foot, but landlords are also offering more in tenant improvements and abatements.