Interest payments are past due on a startlingly high proportion of Washington, D.C.-area commercial mortgage-backed securities assets, according to data from Trepp. Nearly a quarter of collateral for CMBS in the region is at least 60 days behind on payments.
All of the transactions with delinquent loans date to before the global financial crisis. In total, the 28 delinquent D.C.-area CMBS properties owe more than $1.6 billion in unpaid principal. Most, if not all, are office buildings.
The offender with the largest outstanding balance is The Portals, a gigantic office complex blocks from the National Mall that secured a $155 million CMBS loan securitized into the GCCFC 2006-GG7 deal in 2006. Thanks to an interest-only payment structure, the entirety of the principal debt remains outstanding and amounts to 94 percent of the property’s current value. Income from the building, which was sold in a foreclosure sale for just $84 million last year after several tenants vacated in 2013, amounts to less than 40 percent of required debt payments.
But relative to their latest valuations, other CMBS assets in the region are even deeper underwater. One portfolio of office buildings in Fairfax, Va.—the Fair Lakes Office Portfolio, securitized into a pair of 2006 CMBS deals—owes debt amounting to almost two-and-a-half times the property value. And at a single-tenant office building, 14700 Lee Road in Chantilly, Va., that was sent to special servicing in 2012, cash flow has ground to an utter halt: cash income from the building covers just four percent of required debt-service payments.
Office availability remains persistently high in Northern Virginia, climbing from 19 percent in 2013 to 22 percent this year. (The national rate for office availability for second-tier properties is just 15 percent.) Asking rents averaged $33.58 per square foot in the first quarter of 2018, according to Savills Studley.
“Northern Virginia remains firmly in the tenant’s favor,” Thomas Fulcher, an executive at the firm, wrote in a recent report.
Eight of the delinquent CMBS properties are in Washington’s Maryland suburbs, but the office market is tighter there, with availability holding at under 20 percent. Nonetheless, rents are lower, averaging $28.01 per square foot in the first part of the year.
Lindsay Stroud, a managing director in Savills Studley’s Washington office reached by phone, said that the fates of Virginia and Maryland submarkets are closely tied to their accessibility from Washington’s Metro system.
“Different pockets and different submarkets are doing different things,” Stroud said. “Tysons Corner is a a very hot market…because they can say, ‘We’re on the Silver Line,'” a reference to a branch of the city’s subway system.
Stroud was markedly more pessimistic about other areas that are harder for urban commuters to reach.
“Loudoun County, in my mind, will have a hard time ever coming back,” he said.