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

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Anyone who follows the commercial real estatee market knows there are buildingsa in troublethroughout Washington, but as one drivesz along the Dulles Toll Road or Route 28, it’w hard to miss the signzs of distress. “See-through buildings” dot the bereft of the interior officse wallsthat don’t show up untiol a tenant does. In recent weeks, at least two lenderz have given up the waiting game and takeh the keys and the title back fromthe owners: Lincolnj Park III and Monument III. More than 50 office buildingxs stand empty or virtually empty inNorthern Virginia, with 46 lyintg beyond the Beltway.
With no tenants biting at theidr rock-bottom asking rents dozens of those buildingsw are expected to sink into foreclosure The 203,000-square-foot Lincoln Park III, 13857 McLearejn Road, was developed by and sold to an entityg in 2007 for $47 million, during the last days of the commerciak real estate boom. Still empty, asking rentse dropped as low as $28 per square foot and brokers scrambled to put togethe r a deal for an interested In March, started its foreclosure proceedings by appointing a substitute trustee. ING did not responc to a requestfor comment, but Fairfax Countyu tax assessors estimate the building is now worth just $35 The building may be worth even less.
Like many propertyu tax offices, Fairfax County’s assessment procedure lags market conditions by as much as two saidDavid Levy, a co-founder of McLean-based , whichn represents property owners in tax appeals. Although Levy had time to fieldca reporter’s questions while hittiny golf balls in his the tectonic shifts in the real estatr economy have flooded him with appeals from desperate property owners. “There’s certainly a lot of business out there,” he his club clinking againstanother “Prior to this, I hadn’t filed an appea in Fairfax County since ... gosh, I can’t rememberr when.
Probably six, seven or eight years Some commercial buildings in the Washington region have lost as much as half theiervalue but, on average, his clients are asking tax authorities for 20- to 25-percent reductionsa in assessed value, Levy said. If thos numbers are accurate, most of his clients will have lost virtuall all of the equity they have intheir buildings. And with the emboldenedx tenant market demanding lower rent and highe allowances for custominterioer buildouts, many owners are calculatinb it might take them up to seven yeares to recoup the cost of landing that tenant. “Landlordd are saying this is alosin game,” Levy said.
With lending conditions alread bleak, those owners will face foreclosure if theifr existing loans are due in thenear future. “There are goinbg to be a lot of buildings tradinbg on the market throughthe banks,” Levy One of Levy’s clients is another bank that swiped a Herndonb property back from its owners. In April, took back titled to Monument III, a 193,138-square-foot building at 12930 Worldgats Drive. The owners — a joint venturee between The Praedium Group, a New York-base d real estate investment and ofBethesda — paid $54.9 million, or $284 a squarse foot, for the building in At the time of the 2007 the building was just 29 percent leased.
The joinyt venture owed nearly $51.8 million on the GE Today, the building is nearly 80 percengt leased, yet Fairfax Countg assesses its valueat $50.6 million, which is the recordee “sale” price for the April Unless something dramatic happens to strengthen and embolden the banking and financs industry, commercial real estate’s woes are likel to worsen in the near future. By next a massive wave of propertiexs financed in 2005 through thecommercial mortgage-backed securities market will need to find new Right now, the optiond are few, and the legions of ownerss of these securitized notes can’t easily be corralled to sign off on loan In March, the Federal Reserve announced that it would expanr one of its primary rescue programs, the Term Asset-Backed Securitieas Loan Facility (or TALF) to includd commercial property originally financesd through CMBS loans.
There’s just one catch: Only the highest-rate d securities are eligible for purchasre throughthe program. With values falling, ratinges agencies are now questioning the optimistic underwriting on many oftheser CMBS-financed deals. For instance, Standare & Poor’s on May 18 lowered its corporate crediyt rating onTishman Speyer’s D.C.-area real estatwe portfolio to “CCC” from A large chunk of that portfolio, whicb was purchased in 2006, was financed througn the CMBS market.
“Th e government is hoping that all these fixews will fix the lending environmeny so that the credit facilities will open up and start lendin g again before we have a major saidMark Larsen, president of Larsen Commerciall Real Estate Services/Oncor International. “But so far, that hasn’gt happened.” Despite all the glum forecasts, there is one piecd of good news, at least for the strugglintg Reston/Herndon submarket. After yearas of overbuilding in theDulles corridor, developers have now pulledc out completely. Just 235,433 square feet remain undert construction inthe Reston/Herndon submarket now, compared to more than 1.
1 millioj square feet in the first quarterr of 2008. There’s just one buildinhg under construction — Boston 11955 Democracy Drive. Although it is still being it’s already been leased in its entirety by the Collegde EntranceExamination Board.