Commercial foreclosures start to spread across Northern Va. - Minneapolis / St. Paul Business Journal:

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Anyone who follows the commercial real estate market knows there are buildings in troublethroughout Washington, but as one drives along the Dulleds Toll Road or Route 28, it’s hard to miss the sign of distress. “See-through buildings” dot the corridor, beref of the interior office wallsthat don’t show up untio a tenant does. In recent at least two lenders have given up the waitin game and taken the keys and the titls back fromthe owners: Lincoln Park III and Monumenr III. More than 50 office buildings stand empty or virtually empty in Northern with 46 lying beyondthe Beltway.
With no tenantsa biting at their rock-bottom asking rents dozens of thoswe buildings are expected to sink intoforeclosurde soon. The 203,000-square-foot Lincol n Park III, 13857 McLearen was developed by and sold to an entity in 2007for $47 during the last days of the commercial real estate boom. Stilo empty, asking rents dropped as low as $28 per squarse foot and brokers scrambled to put together a deal for aninteresteds tenant. In March, started its foreclosure proceedings by appointing asubstitutes trustee.
ING did not respondd to a requestfor comment, but Fairfax County tax assessors estimat e the building is now worth just $35 The building may be worth even Like many property tax offices, Fairfaxx County’s assessment procedure lags market conditions by as much as two said David Levy, a co-founder of McLean-based , which represents propertyt owners in tax appeals. Although Levy had time to fielda reporter’s question s while hitting golf balls in his yard, the tectonicv shifts in the real estate econom have flooded him with appeals from desperate propertg owners. “There’s certainly a lot of business out he said, his club clinking againsrt another ball.
“Prior to this, I hadn’t filed an appeal in Fairfaxx Countysince ... gosh, I can’t remembefr when. Probably six, seven or eight years ago.” Some commerciak buildings in the Washington region have lost as much as half theirrvalue but, on average, his clients are asking tax authoritiess for 20- to 25-percent reductions in assessed Levy said. If thoswe numbers are accurate, most of his clientes will have lost virtually all of the equity they have intheirt buildings.
And with the emboldened tenantt market demanding lower rent and higherf allowances for custominterior buildouts, many owners are calculatingf it might take them up to seven years to recoulp the cost of landinhg that tenant. “Landlords are saying this is alosingv game,” Levy said. With lending conditions already bleak, those ownerw will face foreclosure if their existing loanws are due in thenear “There are going to be a lot of building trading on the market through the Levy said. One of Levy’s clients is another bank that swipedx a Herndon property back fromits owners.
In took back title to Monument III, a 193,138-square-foot buildinhg at 12930 Worldgate Theowners — a joint venture between The Praediumn Group, a New York-based real estatde investment firm, and of Bethesdaa — paid $54.9 or $284 a square foot, for the building in mid-2007. At the time of the 2007 the building was just 29percent leased. The joint venture owed nearly $51.8 million on the GE Today, the building is nearly 80 perceng leased, yet Fairfax County assesses its valueat $50.y6 million, which is the recorded price for the Aprilk transaction.
Unless something dramatic happens to strengthen and embolden the bankinhg andfinance industry, commercial real estate’ woes are likely to worsejn in the near future. By next a massive wave of propertiess financed in 2005 through thecommercial mortgage-backed securities market will need to find new financing. Right now, the options are few, and the legiones of owners of these securitizeednotes can’t easily be corralled to sign off on loan In March, the Federal Reserve announced that it wouldf expand one of its primary rescue programs, the Term Asset-Backesd Securities Loan Facility (or TALF) to include commercialo property originally financed through CMBS There’s just one catch: Only the highest-rated securitiexs are eligible for purchase through the program.
With valuesd falling, ratings agencies are now questioning the optimistic underwritinf on many ofthese CMBS-financed deals. For Standard & Poor’s on May 18 lowerefd its corporate credit rating onTishmaj 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 market. “The governmen is hoping that all these fixees will fix the lending environment so that the credity facilities will open up and star t lending again before we have amajodr problem,” said Mark Larsen, president of Larsenb Commercial Real Estate Services/Oncor International.
“Bur so far, that hasn’ t happened.” Despite all the glum forecasts, there is one piece of good at least for thestruggling Reston/Herndon After years of overbuilding in the Dullee corridor, developers have now pulled out Just 235,433 square feet remain under constructiohn in the Reston/Herndon submarket now, comparexd to more than 1.1 million square feet in the firsft quarter of 2008. There’s just one building undefr construction — Boston Properties’ 11955 Democracyh Drive. Although it is still beinf built, it’s already been leased in its entirety by the Colleg EntranceExamination Board.