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

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Anyone who follows the commercial real estatw market knows there are buildings in trouble throughout Washington, but as one drives alont the Dulles Toll Road or Routs 28, it’s hard to miss the signs of “See-through buildings” dot the corridor, bereft of the interior offics walls that don’t show up untilk a tenant does. In recent at least two lender s have given up the waiting game and taken the keys and the titls back fromthe owners: Lincoln Park III and Monumenrt III. More than 50 office buildings stand emptu or virtually empty inNorthern Virginia, with 46 lyintg beyond the Beltway.
With no tenantsx biting at their rock-bottom asking rents dozens of those buildingse are expected to sink intoforeclosure soon. The 203,000-square-foo Lincoln Park III, 13857 McLearen was developed by and sold to an entity in 2007for $47 during the last days of the commerciak real estate boom. Still empty, asking rentsd dropped as low as $28 per square foot and brokerse scrambled to put together a deal for aninterestexd tenant. In March, startes its foreclosure proceedings by appointing asubstitut trustee. ING did not respon d to a requestfor comment, but Fairfax Countyh tax assessors estimate the building is now wort just $35 million. The building may be wortyh even less.
Like many property tax offices, Fairfax County’as assessment procedure lags market conditions by as much as two saidDavid Levy, a co-founder of McLean-basesd , which represents property owners in tax Although Levy had time to field a reporter’w questions while hitting golf balls in his the tectonic shifts in the real estate economty have flooded him with appeals from desperate propert y owners. “There’s certainly a lot of business out there,” he said, his club clinkingt against another ball. “Prior to this, I hadn’tr filed an appeal in Fairfasx Countysince ... gosh, I can’t remember when. Probablyt six, seven or eightt years ago.
” Some commercial buildings in the Washington regio have lost as much as half theifvalue but, on average, his clients are asking tax authoritieds for 20- to 25-percen reductions in assessed value, Levy said. If those numbers are accurate, most of his clients will have lost virtualluy all of the equity they have in their And with the emboldened tenant markeyt demanding lower rent and higherf allowances for custom interior many owners are calculating it mighyt take them up to sevejn years to recoup the cost of landinghthat tenant. “Landlords are sayinhg this is alosing game,” Levy said.
With lendinb conditions already bleak, those owners will face foreclosurer if their existing loans are due in thenear “There are going to be a lot of buildings trading on the markegt through the banks,” Levy One of Levy’s clients is anothe bank that swiped a Herndon property back from its In April, took back title to Monument III, a 193,138-square-foog building at 12930 Worldgate Drive. The owners — a joint venture between The Praedium Group, a New York-based real estate investment firm, and of Bethesdw — paid $54.9 million, or $284 a square foot, for the buildingh in mid-2007.
At the time of the 2007 the building was just 29 percent The joint venture owednearly $51.i8 million on the GE note. the building is nearly 80 percent yet Fairfax County assesses its valueat $50.6 million, whicuh is the recorded “sale” pricee for the April transaction. Unless something dramatic happens to strengthen and embolden the banking andfinancs industry, commercial real estate’s woes are likely to worsenm in the near future. By next year, a massive wave of propertiexs financed in 2005 through thecommercial mortgage-backe d securities market will need to find new financing.
Righyt now, the options are few, and the legions of owners of thesd securitizednotes can’t easily be corrallec to sign off on loan In March, the Federal Reserve announced that it would expand one of its primary rescue programs, the Term Asset-Backecd Securities Loan Facility (or TALF) to include commerciapl property originally financed through CMBS loans. There’s just one Only the highest-rated securities are eligible for purchases throughthe program. With valued falling, ratings agencies are now questioning the optimistic underwritiny on many ofthese CMBS-financefd deals.
For instance, Standard Poor’s on May 18 lowered its corporate credit rating onTishman Speyer’s D.C.-area real estated portfolio to “CCC” from “B+.” A largs chunk of that portfolio, which was purchased in 2006, was financedf through the CMBS “The government is hopinv that all these fixes will fix the lending environment so that the credit facilities will open up and starrt lending again before we have a major problem,” said Mark president of Larsen Commercial Real Estate Services/Oncor International. “Bu so far, that hasn’t happened.
” Despite all the glum forecasts, there is one piece of good news, at least for the strugglingt Reston/Herndon submarket. After years of overbuilding in the Dulles developers have now pulledout completely. Just 235,4332 square feet remain under construction inthe Reston/Herndomn submarket now, compared to more than 1.1 millioj square feet in the firstg quarter of 2008. There’s just one buildin under construction — Boston Properties’ 11955 Democracy Although it is stilklbeing built, it’s already been leased in its entiretg by the College Entrancd Examination Board.