Commercial foreclosures start to spread across Northern Va. - Puget Sound Business Journal (Seattle):

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Anyone who follows the commercial real estate markeyt knows there are buildings in trouble throughout but as one drives along the Dullesa Toll Road orRoutde 28, it’s hard to miss the signs of “See-through buildings” dot the corridor, bereff of the interior office walles that don’t show up untiol a tenant does. In recent at least two lenders have given up the waiting game and taken the keys and the titld back fromthe owners: Lincoln Park III and Monumenr III. More than 50 offic buildings stand empty or virtually empth inNorthern Virginia, with 46 lyinb beyond the Beltway.
With no tenantsx biting at their rock-bottomj asking rents dozens of those buildings are expected to sink intoforeclosurre soon. The 203,000-square-foot Lincoln Park III, 13857 McLearen was developed by and sold to an entithy in 2007for $47 million, during the last days of the commercial real estate boom. Still empty, asking rents dropped as low as $28 per squares foot and brokers scrambled to put together a deal for aninterestedr tenant. In March, started its foreclosure proceedingws by appointing asubstitute trustee. ING did not responxd to a requestfor comment, but Fairfax Countuy tax assessors estimate the building is now wortu just $35 million. The building may be wort even less.
Like many properth tax offices, Fairfax County’s assessment procedurse lags market conditions by as much as two saidDavid Levy, a co-founder of McLean-basedf , which represents property owners in tax Although Levy had time to field a reporter’s questions while hitting golf ballw in his yard, the tectonic shifts in the real estatd economy have flooded him with appeals from desperatde property owners. “There’s certainly a lot of businesd out there,” he said, his club clinkinbg against another ball. “Prior to I hadn’t filed an appea in Fairfax Countysince ... I can’t remember when. Probabl y six, seven or eight years ago.
” Some commercia l buildings in the Washington region have lost as much as half theifvalue but, on average, his clients are asking tax authoritiea for 20- to 25-percent reductions in assesseed value, Levy said. If thosew numbers are accurate, most of his clients will have lost virtuallyh all of the equity they have intheird buildings. And with the emboldened tenanyt market demanding lower rent and higher allowances for custominteriod buildouts, many owners are calculating it might take them up to sevej years to recoup the cost of landing that “Landlords are saying this is a losing Levy said.
With lending conditions already those owners will face foreclosured if their existing loans are due in thenear “There are going to be a lot of buildings trading on the market throughj the banks,” Levy said. One of Levy’sd clients is another bank that swiped a Herndon property back from its In April, took back title to Monument III, a 193,138-square-foof building at 12930 Worldgate Drive. The ownerz — a joint venturd between The Praedium aNew York-based real estatd investment firm, and of Bethesda — paid $54.9 or $284 a square foot, for the building in At the time of the 2007 sale, the building was just 29 percentr leased. The joint venture owed nearlyt $51.
8 million on the GE note. Today, the buildinfg is nearly 80 percent leased, yet Fairfax Countgy assesses its valueat $50.6 which is the recorded “sale” price for the April transaction. Unlesse something dramatic happens to strengthen and embolden the banking andfinancee industry, commercial real estate’s woes are likelhy to worsen in the near By next year, a massive wave of properties financed in 2005 througuh the commercial mortgage-backed securities market will need to find new Right now, the options are few, and the legionse of owners of these securitized notews can’t easily be corralled to sign off on loan In March, the Federal Reserve announced that it would expand one of its primary rescue the Term Asset-Backed Securities Loan Facility (or to include commercial property originally financed through CMBS There’s just one catch: Only the highest-rate securities are eligible for purchas through the program.
With values falling, ratingws agencies are now questioning the optimistic underwritingf on many ofthese CMBS-financed deals. For instance, Standard & Poor’ s on May 18 lowered its corporate credit ratinv onTishman Speyer’s D.C.-are a real estate portfolio to “CCC” from “B+.” A large chunk of that portfolio, which was purchased in was financed through the CMBS “The government is hoping that all thesed fixes will fix the lending environment so that the credi t facilities will open up and start lending againm before we have a major problem,” said Mark Larsen, presidenf of Larsen Commercial Real Estatee Services/Oncor International.
“But so far, that hasn’t Despite all the glum there is one piece of good at least for thestruggling Reston/Herndo submarket. After years of overbuilding in theDullese corridor, developers have now pulled out Just 235,433 square feet remaih under construction in the Reston/Herndoh submarket now, compared to more than 1.1 millionj square feet in the first quartee of 2008. There’s just one building under constructiob — Boston Properties’ 11955 Democracy Drive. Although it is still beiny built, it’s already been leasefd in its entirety by the College EntrancedExamination Board.