CMBS office loans in special servicing mirror Washington, D.C. slowdown

A number of Washington, D.C.-area CMBS loans are slipping into special servicing, reflecting a slowing D.C. office market marked by increasing office vacancies. Most recently, a $46.4m loan tied to the adjacent Willowwood I and II office buildings at Eaton Place in Fairfax, Virginia was sent off to the special servicer this week after a string of missed payments.

A number of Washington, D.C.-area CMBS loans have slipped into special servicing, reflecting a slowing D.C. office market marked by recent upticks in office vacancies.

This week, a $46.4m loan tied to the adjacent Willowwood I and II office buildings at Eaton Place in Fairfax, Virginia was sent off to the special servicer after a string of missed payments.

Aerial image of Northwest Washington, D.C.
Aerial image of Northwest Washington, D.C.

“This speaks to the decrease of tenants in D.C. offices,” Sean Barrie, an analyst with data firm Trepp, told Real Estate Capital. “There have been a number of tenants, mostly law firms, leaving area office properties over the past few years.”

While some areas have fared better than others, D.C.-area office vacancy rates rose from 14% in 2011 to 17.1% at the end of 2014, according to data from Jones Lang LaSalle.

Major names like Boeing Co. and Northrop Grumman Corp., once anchoring the Rosslyn neighborhood of Virginia, were among an array of tenants to depart last year, skyrocketing vacancies in the area from 10% in 2011 to 22.3% by the end of 2014.

When CMBS loans are tied to buildings with a waning tenancy, it can lead to missed mortgage payments, special servicing and eventually, foreclosures.

Occupancy at the Willowwood I and II properties, a pair of five-story multi-tenant buildings totaling 244,871 sq ft, had dropped 9% over the course of just three months to 72% by the end of 2014.

“Despite commentary from the servicer stating that the borrower has applied an increase in average rental rates, DSCR has been below the 1.20x threshold since 2010 and most recently clocked in at 0.87x,” Trepp stated in a report.

The loan was underwritten to mature in June of 2016 and backs 1.96% of the LBUBS 2006-C6 deal, which includes properties like 1211 Avenue of Americas in Manhattan, The Shops at Las Americas in San Ysidro, California and The Terrace Office Complex in Austin, Texas.

Losses for LBUBS 2006-C6 have made their way up to the J-tranche, at 4.72% of the original deal balance. While no other loans in the pool are in the hands of a special servicer, 35 of its 136 loans are on the watch list, Barrie said.

In another example, Washington Technology Park I and II in Chantilly, Virginia, part of CMLT 2008-LS1, has fallen into foreclosure after the $150m loan tied to the assets was transferred to a special servicer in May.

 

 

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