DC Office Building Faces Imminent Default on $38M Loan

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A $38.1 million commercial mortgage-backed securities (CMBS) loan on a Washington, D.C. office building that houses the U.S. Department of Treasury is headed to special servicing, according to February remittance data.

Washington Capitol Partners acquired the 121,090-square-foot property at 717 14th Street NW in partnership with Credit Suisse (CS) First Boston in 1997, and subsequently purchased Credit Suisse’s interest in 2001. 

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The borrower is facing imminent default over cash flow issues at the building, after losing a number of tenants since the COVID-19 pandemic began, according to special servicer commentary. Occupancy in the building stood at 100 percent in 2020, but had decreased to 74 percent as of the third quarter of 2022, according to a Trepp alert Thursday.

The resulting drop in income led to the debt service coverage ratio—the amount of cash flow available to pay down debt— decreasing from 1.61 to 1.02 in the same time-period.

The original trigger event leading to the imminent default occurred when The Office of Inspector General failed to renew its 11,178-square-foot lease 12 months prior to expiration in August of 2021, according to servicer watchlist commentary.  

While the Treasury renewed its 52,225-square-foot lease in the space in 2022, occupying almost half of the building, the property still faced lease expirations for another 18 percent (approximately) of its space as of late 2022. 

Midland Loan Services is listed as the master servicer, while LNR Securities Holdings is listed as special servicer, according to CMBS data firm CRED iQ. Typically, once a loan is in special servicing, the borrower and special servicer will negotiate  potential resolutions to bring the loan current again —for example a loan modification or workout— with the worst case scenario ultimately being a foreclosure. 

Washington Capitol Partners has managed the property since its acquisition and substantially renovated the building between 2010 and 2012.

CVS Pharmacy is also in the building. 

Request for comment from Washington Capitol Partners was not immediately returned. 

Keith Loria can be reached at Kloria@commercialobserver.com.