Deutsche Mortgage & Asset Receiving Corp, Cantor Commercial Real Estate Lending and UBS Real Estate Securities Inc. have filed a prospectus for COMM 2014-UBS2, a $1.2 billion CMBS conduit transaction collateralized by 59 fixed rate commercial mortgage loans secured by 95 properties.
The collateral properties are in 24 different states, with Massachusetts representing the second highest exposure at 12.3 percent. California represents 18.9 percent of the pool.
The loans have balances that top out at $120.0 million for each of the two largest loans in the pool, the Google and Amazon Office Portfolio, a 1.1 million square foot Class A office portfolio in Sunnyvale, CA; and One Kendall Square (pictured), a 610,110 sf mixed-use complex in Cambridge, Massachusetts.
The One Kendall Square loan consists of the controlling Note A-1 in the original principal amount of $120.0 million of a fixed rate loan in the aggregate principal amount of $203.0 million. The One Kendall Square Loan Combination is secured by the borrowers’ fee simple interest in the seven building, Class A mixed use campus containing 610,110 sq. ft. located at One Kendall Square in Cambridge, Mass.
The One Kendall Square Loan Combination has a 10-year term and amortizes on a 360-month schedule, after an initial four-year interest only period. It accrues interest at a fixed rate equal to 4.82 percent and has a cut-off date balance of $120.0 million.
The $203.0 million One Kendall Square Loan Combination is evidenced by two pari passu notes. Only the controlling Note A-1, with an original principal balance of $120.0 million, will be included in the COMM 2014-UBS2 mortgage trust. The non-controlling Note A-2, with an original principal balance of $83.0 million is expected to be contributed to a future securitization.
Proceeds of the One Kendall Square Loan Combination, along with approximately $114.7 million of sponsor equity, was used to purchase the One Kendall Square Property for approximately $310.0 million, fund upfront reserves of approximately $7.0 million and pay closing costs of approximately $0.7 million.
Based on the appraised value of $325.6 million as of December 9, 2013, the cut-off date LTV ratio of the One Kendall Square Loan Combination is 62.3%.
The borrower, DWF IV One Kendall, LLC, is a single purpose Delaware LLC. The sponsor of the borrower and the nonrecourse carve-out guarantor is DivcoWest Fund IV REIT, LP.
DivcoWest Fund IV REIT, LP is a subsidiary of DivcoWest, a privately-owned real estate investment firm with an office in Boston. DivcoWest’s technology focused office portfolio consists of assets in Silicon Valley and Austin, Texas, as well as approximately 10 properties located in Massachusetts. DivcoWest and its affiliates manage over $2.5 billion of equity for major pension funds, sovereign wealth funds, endowments and high net worth individuals.
The One Kendall Square Property consists of seven, three- to five-story Class A office, lab and retail buildings totaling 610,110 sq. ft., located south of Binney Street in Cambridge. The One Kendall Square Property is part of a mixed-use campus, which totals approximately 669,000 sq. ft. and includes multiple buildings owned by the sponsor located north of Binney Street.
These buildings are not part of the One Kendall Square Property collateral and include a 25,800 sq. ft. nine-screen movie theater, 33,272 sq. ft. of office and lab space and a parking garage with 1,574 parking spaces. There is a parking and access easement that allows tenants of the One Kendall Square Property to use the parking garage.
The One Kendall Square Property was constructed in phases from 1887 to 1994 and originally renovated in 1986. From 2007 to 2013 the full campus underwent an approximately $74.0 million renovation ($111 PSF based on total campus square feet). Renovations consisted of a complete campus revitalization project, including HVAC and common area renovations along with base building upgrades.
Approximately $36.0 million of the total renovation was spent upgrading laboratory space, including the creation of the incubator lab space which is useful for smaller biotech companies. Of the total renovation, approximately $45.1 million ($74 PSF) was spent on the seven buildings which comprise the One Kendall Square Property.
As of November 23, 2013 the One Kendall Square Property is 93.2% leased to 64 tenants.
The majority of the One Kendall Square Property is built out as lab space, which encompasses 51.6% of the net rentable area. Of the 64 tenants, the largest industry concentration is within the lab sector, which makes up approximately 55.0% of the leased area and includes two of the largest tenants, Merrimack and Nine Point Medical.
The Cambridge office and laboratory market consists of three submarkets: West Cambridge, Mid Cambridge and East Cambridge. The One Kendall Square Property is located in the East Cambridge submarket, which has a wide variety of industries such as high-tech, bio-tech, financial services, retail services, manufacturing and healthcare for approximately 59.0% of total market inventory.
As of Q3 2013, the overall Cambridge office market reflects a vacancy rate of 6.5%, with 11.1 million sq. ft. of inventory. The East Cambridge submarket has a total office inventory of approximately 7.3 million square feet with a vacancy rate of 5.9% and average asking rent of $48.83 PSF Gross.
The East Cambridge submarket also has a total lab space inventory of approximately 7.3 million square feet with a vacancy rate of 5.9% and average asking rent of $52.12 PSF NNN.
The appraiser concluded market rent for the One Kendall Square Property to be $38.00 to $54.00 PSF NNN for lab space tenants, $45.00 to $52.00 PSF gross for office tenants, $22.00 to $31.00 PSF NNN for ground floor retail tenants and $12.00 PSF gross for storage space.
The top three tenants at One Kendall Square include:
Merrimack (121,704 sq. ft.)
Merrimack Pharmaceuticals, Inc., which is headquartered at the One Kendall Square Property, is a biopharmaceutical company that develops and commercializes innovative medicines paired with companion diagnostics for the treatment of serious diseases, with an initial focus on cancer. Merrimack provides patients, physicians and the healthcare system with the medicines, tools and information on the diagnosis and treatment of illness through a precise mechanistic understanding of disease. At the One Kendall Square Property, Merrimack consists mostly of lab space, with approximately 10,600 sq. ft. of office space and approximately 3,100 sq. ft. of storage space.
Merrimack has been leasing space at the One Kendall Square Property since 2006 when it occupied 31,747 sq. ft. and has since expanded multiple times to its current 121,704 sq. ft. of leased space. This includes a lease for 3,617 sq. ft. which Merrimack began in November 2013. Merrimack is not yet in occupancy of this space but is paying full rent. Merrimack is estimated to begin build out on this space in early 2014.
Merrimack’s lease expires June 30, 2019 with either
(i) one five-year renewal option at market rent upon written notice given no later than March 31, 2018, or
(ii) one one-year renewal option at market rent upon written notice given no later than December 31, 2016.
Akamai Technologies (51,693 sq. ft.)
Akamai is headquartered at 8 Cambridge Center, which is located adjacent to the One Kendall Square Property. Akamai uses the One Kendall Square Property for office space.
Akamai Technologies (Nasdaq: AKAM) is a leading provider of cloud services, which allows users to share secured data on multiple devices. Founded in 1998, Akamai helps enterprises accelerate innovation by removing the complexities of technology so companies can focus on driving business forward.
With over 137,000 servers in 87 countries, Akamai’s network is one of the world’s largest distributed-computing platforms and is responsible for serving 15% to 30% of all web traffic. Akamai has over 3,400 employees and had year-end 2013 revenues of approximately $1.6 billion.
Akamai signed its lease at the One Kendall Square Property in September 2013, and is estimated to take occupancy of its space in April 2014, with rent commencing on April 19, 2014. At closing, $652,323 was reserved for all outstanding rent abatements due to Akamai under its lease. Akamai has two five-year renewal options at market rent upon written notice given on or before 15 months prior to the expiration of the then-existing lease term.
Nine Point Medical (31,916 sq. ft.)
Nine Point has been a tenant at the One Kendall Square Property since December 2010 and expanded its space in January 2013. Nine Point uses the One Kendall Square Property for lab space, with one basement storage space.
Nine Point Medical is headquartered at the One Kendall Square Property and has one two-year option at 95% of market rent upon nine months prior written notice.
The company is positioned to improve patient care through the development of medical devices that enable high-resolution in-vivo imaging. Utilizing advanced optical technologies, Nine Point enables physicians and pathologists to visualize disease in real time and eventually treat patients during the same procedure. Applications of Nine Point’s technology include gastroenterology, pulmonary medicine, breast cancer, gynecology, urology, and ENT and plans to gradually incorporate therapeutic devices.