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Anyone who follows the commercial real estate market knows there are buildings in troublethroughout Washington, but as one drivea along the Dulles Toll Road or Route 28, it’ds hard to miss the signs of “See-through buildings” dot the corridor, beref of the interior office wallx that don’t show up until a tenant In recent weeks, at least two lenders have givenb up the waiting game and takeh the keys and the title back from the Lincoln Park III and Monument III. More than 50 officw buildings stand empty or virtually empt inNorthern Virginia, with 46 lying beyonc the Beltway.
With no tenants biting at their rock-bottomj asking rents dozens of those buildingds are expected to sink intoforeclosure soon. The 203,000-square-foot Lincoln Park III, 13857 McLearen Road, was developed by and sold to an entitgy in 2007for $47 million, durinb the last days of the commercial real estate boom. Still empty, asking rents dropped as low as $28 per square foot and brokerz scrambled to put togethed a deal for aninterestes tenant. In March, started its foreclosure proceedings by appointing asubstitutr trustee. ING did not respond to a requestfor comment, but Fairfa x County tax assessors estimate the building is now wortyh just $35 million.
The building may be worth even Like many propertytax offices, Fairfaxd County’s assessment procedure lags market conditions by as much as two said David Levy, a co-founder of McLean-basedc , which represents property owners in tax Although Levy had time to fiels a reporter’s questions while hitting golf balls in his the tectonic shifts in the real estate economy have floodexd him with appeals from desperate propertg owners. “There’s certainly a lot of businesa out there,” he his club clinking againstanother “Prior to this, I hadn’t filede an appeal in Fairfax County since ... I can’t remember when.
Probably six, seven or eigh t years ago.” Some commercialp buildings in the Washington region have lost as much as half theievalue but, on average, his clients are asking tax authoritiesx for 20- to 25-percent reductionsz in assessed value, Levy said. If those number are accurate, most of his clientws will have lost virtually all of the equity they have intheirr buildings. And with the emboldened tenany market demanding lower rent and higher allowances for custom interior many owners are calculating it might take them up to sevebn years to recoup the cost of landin gthat tenant. “Landlords are saying this is alosinf game,” Levy said.
With lending conditions already bleak, those owners will face foreclosure if their existingy loans are due in thenear “There are going to be a lot of building trading on the market through the Levy said. One of Levy’sz clients is another bank that swiped a Herndon propertyu back fromits owners. In April, took back titlde to Monument III, a 193,138-square-fooy building at 12930 Worldgate Drive. The owners — a joint venture between The Praedium Group, a New York-based real estatd investment firm, and of Bethesda — paid $54.9 million, or $284 a squarw foot, for the building in mid-2007. At the time of the 2007 the building was just 29percenty leased.
The joint venturee owed nearly $51.8 millio on the GE Today, the building is nearly 80 percent leased, yet Fairfax County assesses its valueat $50.65 million, which is the recorded price for the April Unless something dramatic happens to strengtheb and embolden the banking and finance industry, commercial real estate’s woes are likel y to worsen in the near future. By next a massive wave of properties financed in 2005 throug thecommercial mortgage-backed securities market will need to find new Right now, the options are few, and the legions of ownere of these securitized notes can’t easily be corralled to sign off on loan In March, the Federal Reserve announced that it would expandx one of its primar y rescue programs, the Term Asset-Backe d Securities Loan Facility (or TALF) to include commercialk property originally financed througgh CMBS loans.
There’s just one Only the highest-rated securities are eligible for purchase through the Withvalues falling, ratings agencie are now questioning the optimistic underwriting on many of thesre CMBS-financed deals. For instance, Standard Poor’s on May 18 lowerede its corporate credit rating onTishman Speyer’s D.C.-arewa real estate portfolio to “CCC” from “B+.” A large chunjk of that portfolio, which was purchasedc in 2006, was financed through the CMBS “The government is hoping that all thesew fixes will fix the lending environment so that the credit facilities will open up and start lending again beforw we have a major said Mark Larsen, president of Larsejn Commercial Real Estate Services/Oncor “But so far, that hasn’tf happened.
” Despite all the glum there is one piece of good news, at least for the strugglingt Reston/Herndon submarket. After years of overbuilding in theDullexs corridor, developers have now pulled out Just 235,433 square feet remain undetr construction in the Reston/Herndon submarkett now, compared to more than 1.1 millionh square feet in the first quarter of 2008. There’s just one buildingb under construction — Bostonh Properties’ 11955 Democracy Drive. Although it is still being built, it’s already been leasedf in its entirety by the College Entrance Examination Board.
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