Woes continue for Washington, DC, office CMBS

Another round of Washington, DC, area CMBS loans have fallen into special servicing due to tenancy issues.

Another round of Washington, DC, area CMBS loans have fallen into special servicing due to tenancy issues.

DC area office vacancy rates rose more than three percentage points from 2011 to 17.1% at the end of 2014, according to data from Jones Lang LaSalle, leading to a string of loans falling into special servicing earlier this year. The resulting woes continue for at least three additional DC area loans, according to data firm Trepp.

Barrie
Barrie

“The case still remains that major tenant departures are the biggest detriment to the DC office market,” said Trepp analyst Sean Barrie.

Lower rents across the market have some tenants deciding to move elsewhere if landlords don’t reduce rents accordingly, Barrie noted.

“Most of these tenants have fled from suburban offices in Maryland and Virginia. Government downsizing was the impetus for these departures early on, but with rents driven down in the wake, it has seen other properties falter as well,” he said.

A $108.9m Greensboro Park loan on the special servicer list has been granted a second maturity date extension until June 2017. The loan is backed by a 485,000 square foot office building in McLean, Virginia. The property was appraised for $169m in 2007 but was revalued at $95m in 2010.

Two other loans backing DC offices have been sent to special servicing. The first was a $30.7m Spacenet loan at 1750 Old Meadow Road, where the data network provider’s 137,000 sq ft McLean property is entirely leased to Spacenet with a lease that ends next March.

The other is loan backing the Chevy Chase Center in Chevy Chase, Maryland. The Chevy Chase loan has about $87m left on its balance. The five-building mixed-use complex contains almost 400,000 sq ft, 56% of which is office and the remainder retail.

“While the financials for the notes appeared solid, watchlist notes from May indicated that several tenants did not plan to renew their leases in the coming years,” Trepp noted in an emailed memo.

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

In April, a $46.4m loan tied to the adjacent Willowwood I and II office buildings at Eaton Place in Fairfax, Virginia, backing LBUBS 2006-C6 deal, was sent to the special servicer after a string of missed payments. Occupancy on the pair of five-story multi-tenant buildings had dropped 9% over the course of just three months to 72% by the end of 2014.

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

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