Basis Investment Group this week provided $100 million of equity and preferred equity investment in a mixed-use residential and multifamily project that is part of the ongoing redevelopment of the Philadelphia Navy Yard.
In addition to helping to capitalize the next phase of a vibrant, years-long project to develop the waterfront site, the financing – unique in that each part includes women- and minority-led representation – provides access to institutional-quality deals for retail investors who are people of color, noted Dale Burnett, managing director at BIG. It also could provide a blueprint for how deals of this kind will be done going forward.
“Municipalities across the country are increasingly requiring minority participation in their RFPs to developers. This project originally contemplated a 25% equity investment from a minority enterprise. However, the Ensemble/Mosaic team [Basis worked with] put forth a development plan with DE&I goals that align well with Basis’ ethos leading to our decision to be the projects sole equity investor,” Burnett added.
Deal breakdown
The project’s capital stack includes a pair of senior construction loans, with a $78 million facility provided by Ullico and a $95 million participating facility from M&T Bank. CBRE Capital Advisors arranged the financing on behalf of sponsors Ensemble Investments, Mosaic Development Partners and Korman Communities.
“This is probably one of the largest check sizes invested in a single project in Philadelphia that includes 100 percent of the LP capital invested by a diverse manager, said Tammy Jones, co-founder and chief executive of Basis Capital Group. “In addition, the GP group included Mosaic, which like Basis is African American- and female-owned. Not only do we have this opportunity to provide opportunity for women and people of color, but we can be creative in how we deploy capital.”
Plans for Phase I of the water project include 614 luxury, furnished, market-rate and affordable housing units, as well as additional amenities and retail that will co-exist with the life sciences and office properties at the Navy Yard. The properties will be LEED-certified and include additional green space for residents.
“This is not just a vacant development site,” Jones said. “There are 15,000 people who are going to work there every day and while there is [substantial] life sciences space at the Navy Yard today, there was no multifamily. We are trying to create a hub of desperately-needed housing and need to continue to create these kinds of opportunities to create community.”
The Navy Yard opportunity was interesting not just because of the opportunity to work with Mosaic, an African American- and women-owned general partner in the deal, but because it allowed Basis to participate in the creation of housing. “We believe there is an affordability crisis and a demand crisis in housing, and this is a chance to meet that objective as well,” Jones added.
Fifty percent of the project’s design and engineering is provided by minority and women-owned business enterprises. Additionally, 45 percent, or about $90 million, of the construction will be allocated to MWBE contractors, and 25 percent of the retail space will be reserved for similar businesses. Finally, 2 percent of annual cashflow will be donated to a foundation that supports the professional development of minorities and women, Jones noted.
“Basis has a commitment to invest, lend and hire qualified people of color and women because we believe diverse teams produce better outcomes and we believe that access to capital and credit is the biggest challenge facing the underrepresented in the commercial real estate industry. The question is how you transfer that ethos into what we think is a great business model. If we believe diverse teams produce better outcomes, we believe diversity in our partnerships helps us to find alpha,” Jones added.
Coming together
The Philadelphia Navy Yard project is in line with other urban developments Basis has capitalized. The firm formed an equity partnership with Tishman Speyer for an eight-property portfolio in downtown Santa Monica, California, and is working with Related Beal on 22 Drydock, a 319,000-square-foot life sciences complex on the waterfront in Boston.
“These are landmark deals where we are part of the capital stack as a minority-owned manager. Being an investor alongside those prolific, large development companies and then leveraging our access to enable women and people of color to invest in those projects demonstrates how diverse ownership spurs greater inclusivity and creates value beyond the achievement of risk-adjusted returns,” Burnett said.
He added: “We have developed a mousetrap for creating access to institutional-quality, large-scale investments for women and people of color that help to provide the tax dollars that fuel these projects but have been historically disenfranchised from their ownership.”
Initially, the firm was offered the ability to contribute about 10 percent of the equity, but Basis saw a broader opportunity and ultimately funded the entire equity portion. “This deal is funded by institutional capital, but all led by minorities and women,” Burnett added.
Outlook
The deal represents a new way of doing business in the commercial real estate market, particularly about how institutional investor dollars are allocated, Burnett noted.
“From our view, pension and public dollars fueled by taxes are largely coming from the everyday Americans, the first responders, nurses and teachers. Those people, to a large degree, are women and minorities. Our business model brings equitability to an industry that has often excluded those voices when it’s time to determine who should design, build and own the skyline in our urban centers,” he said.
Moreover, Jones noted there is substantial ability for different market participants to come together to develop and redevelop large-scale projects like the Philadelphia Navy Yard.
“This is a blueprint for the way deals should come together, with different layers and levels of majority and minority stakeholders coming together,” Jones said. “It is also all about partnership in these times, where it is necessary to navigate more carefully. Finding the right partners with the right capital and vision is even more important today.”
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