Walker & Dunlop Meets The Challenges Of Mixed-Use
With its banking arm, Green Park Financial, the company brings a unique perspective to development.
Susan Fishman

Walker & Dunlop, one of the Mid-Atlantic region’s largest and most established commercial real estate firms, understands both sides of a transaction — at a level its competitors don’t, says James Gurley, the firm’s senior vice president.

“Because of the backgrounds of some of our senior people, we can naturally adopt the perspective of the principal, whether that’s the owner or the credit officer at the bank,” he says.

Headquartered in Bethesda, Maryland, Walker & Dunlop specializes in mortgage banking, structured finance, equity placement, institutional sales, loan servicing and asset management. The company is also the managing general partner of Green Park Financial, one of the country’s largest Fannie Mae DUS lenders. Though the firm has experience in all product types, in the past year, Walker & Dunlop has spent a great deal of time on mixed-use development, especially in its structured finance group.

Recently, Walker & Dunlop negotiated $160 million in non-recourse construction financing for CityVista in Washington, D.C. The development will be a residential and retail mixed-use project located on a 3.2-acre site at the corner of 5th and K Streets, N.W. It will include roughly 120,000 square feet of retail, 244 for-rent apartment units, 441 for-sale condominium units and 794 underground parking spaces.

Earlier in the year, the company raised joint venture financing for the new City Center at Oyster Point in Newport News, Virginia. When completed, the project will consist of more than 1 million square feet of office space, 225,000 square feet of retail space, 800 residential units, a 260-room Marriott and a 70,000-square-foot conference facility. Walker & Dunlop brought in Northwestern Mutual as the joint venture partner for the local development entity, HL Development.

“Those two deals are emblematic of our expertise in mixed-use,” says Gurley. “We also spend quite a bit of time on the retail side from the standpoint of retail investment sales and the financing of retail development.”

Walker & Dunlop raised joint venture financing for the new City Center at Oyster Point in Newport News, Virginia. When completed, the project will consist of more than 1 million square feet of office space, 225,000 square feet of retail space, 800 residential units, a 260-room Marriott and a 70,000 square-foot conference facility. Walker & Dunlop brought in Northwestern Mutual as the joint venture partner for the local development entity, HL Development.

“On the development side, you need to have one lender that can understand all of it and capitalize the development of the overall project but at the same time, you need to compartmentalize the land uses by setting up a condominium interest for each land use. The condominium component, the apartment component and even the parking component would be separate condominium interests with separate allocations of the financing so you can have a clear delineation of the performance of each segment. It also facilitates the sale or permanent financing of the different uses at the optimum level.”

Another challenge with mixed-use development may be potentially sharing the proceeds of a project, says Gurley.

“You may have to have an accelerated paydown,” he says. “For example, if you allocated $40 million to the condominium portion, you might have to pay off $50 million of the overall loan from condo sales. But on a typical condo, your margin might be such that it would allow you to take profits from that portion without waiting until the entire project is developed, which was a key component of the financing we did at CityVista. The overall development time frame of that deal is 48 months, and the first phase of condos will be up and done in 24 months. From a developer’s perspective, you’d rather not wait until the 48th month to benefit from the success of the early phases.”

The future for commercial investment, and thus Walker & Dunlop, says Gurley, will depend on where interest rates go and how long it takes for rising interest rates to filter through the cap rate.

“It’s an interesting time in the market with the rising interest rate environment,” he says. “Clearly there’s a lag that one would expect with the effect on cap rates, but where are rates going to go? I guess that’s the crystal ball everyone would like to have.”