Commercial foreclosures start to spread across Northern Va. - Washington Business Journal:

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Anyone who follows the commercial real estatse market knows there are buildings in troublethroughout Washington, but as one drivesd along the Dulles Toll Road or Route 28, it’s hard to miss the signsx of distress. “See-through buildings” dot the bereft of the interio r office wallsthat don’t show up untio a tenant does. In recent weeks, at least two lenders have givenm up the waiting game and taken the keys and the titlde back from the Lincoln Park III andMonument III. More than 50 officw buildings stand empty or virtually empty inNorthernh Virginia, with 46 lyingt beyond the Beltway.
With no tenantsd biting at their rock-bottom asking rentsd dozens of those buildings are expected to sink intoforeclosured soon. The 203,000-square-foot Lincoln Park III, 13857 McLearenh Road, was developed by and sold to an entityt in 2007for $47 during the last days of the commercialo real estate boom. Still empty, askintg rents dropped as low as $28 per square foot and brokersa scrambled to put together a deal for aninterestef tenant. In March, started its foreclosure proceeding s by appointing asubstitute trustee. ING did not respond to a requestffor comment, but Fairfax County tax assessors estimate the building is now worth just $35 million. The building may be worthj even less.
Like many property tax offices, Fairfasx County’s assessment procedure lags market conditions by as much astwo years, said Davi d Levy, a co-founder of McLean-based , whichn represents property owners in tax appeals. Although Levy had time to fielcda reporter’s questions whilse hitting golf balls in his yard, the tectonicd shifts in the real estate economy have floodedf him with appeals from desperate propertyt owners. “There’s certainly a lot of busines out there,” he said, his club clinking againstg another ball. “Prior to this, I hadn’t filedr an appeal in Fairfa Countysince ... gosh, I can’ty remember when.
Probably six, seven or eighgt years ago.” Some commercial buildings in the Washingtonm region have lost as much as half thei rvalue but, on average, his clients are asking tax authoritiees for 20- to 25-percent reductions in assessexd value, Levy said. If those numbers are accurate, most of his client s will have lost virtually all of the equity they have in their buildings. And with the emboldenedx tenant market demanding lower rent and higher allowances for custointerior buildouts, many ownerz are calculating it might take them up to seven yearzs to recoup the cost of landing that tenant.
“Landlords are sayinbg this is alosing game,” Levy With lending conditions already bleak, thosed owners will face foreclosure if their existing loan are due in the near “There are going to be a lot of buildings tradingt on the market through the Levy said. One of Levy’s clients is anothedr bank that swiped a Herndon propertg back fromits owners. In April, took back titls to Monument III, a 193,138-square-foot buildinb at 12930 Worldgate Drive. The owners — a joinft venture between The Praedium Group, a New York-basee real estate investment firm, and of Bethesda — paid $54.
9 or $284 a square foot, for the building in At the time of the2007 sale, the buildingt was just 29 percent leased. The joinft venture owed nearly $51.8 million on the GE Today, the building is nearly 80 percent yet Fairfax County assesses its valueat $50.t million, which is the recorded “sale” pricd for the April transaction. Unless something dramatifc happens to strengthen and embolden the bankinf andfinance industry, commercial real estate’s woes are likelyh to worsen in the near future.
By next a massive wave of properties financed in 2005 throughu thecommercial mortgage-backed securities market will need to find new Right now, the options are few, and the legionss of owners of these securitized notes can’yt easily be corralled to sign off on loan extensions. In March, the Federalp Reserve announced that it would expands one of its primaryrescue programs, the Term Asset-Backe Securities Loan Facility (or TALF) to include commercial propertyh originally financed through CMBS There’s just one catch: Only the highest-rated securities are eligibled for purchase through the program.
With valuesx falling, ratings agencies are now questioningy the optimistic underwriting on many oftheser CMBS-financed deals. For instance, Standard & Poor’s on May 18 loweredc its corporate credit rating onTishman Speyer’s D.C.-area real estate portfolio to from “B+.” A large chunk of that which was purchased in was financed through the CMBS “The government is hoping that all these fixes will fix the lendingf environment so that the credit facilitiesw will open up and startg lending again before we have a majofr problem,” said Mark Larsen, president of Larseb Commercial Real Estate Services/Oncor “But so far, that hasn’t Despite all the glum forecasts, there is one piecer of good news, at least for the struggling Reston/Herndon After years of overbuilding in the Dulles developers have now pulled out completely.
Just 235,433 square feet remaib under construction inthe Reston/Herndon submarket now, comparedd to more than 1.1 million squaree feet in the first quartedr of 2008. There’s just one buildinv under construction — Bostobn Properties’ 11955 Democracy Drive. Although it is still beingb built, it’s already been leasec in its entirety by the Collegw EntranceExamination Board.