Finance  ·  CMBS

DC’s Most Distressed Office Debt

These troubled loans amounted to more than $1 billion — unsurprisingly, high vacancy is to blame


The top 10 collateralized office loans facing distress in Washington, D.C. in December, amount to just over $1 billion in total and represent 4 million square feet of office space, according to data from research firm CRED iQ

Overall, 11 percent of office commercial mortgage-backed securities (CMBS) loans in D.C. were delinquent or in special servicing as of October 2023, putting D.C. in one of the more precarious post-pandemic positions among major U.S. markets, according to CRED iQ. For comparison, San Francisco had 18 percent delinquency, while New York had 8.4 percent.

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A separate analysis from CMBS research firm Trepp found that almost 80 percent of office loans in D.C. were “criticized,” meaning there was some concern of default risk — putting it in line with San Francisco, despite D.C. having a much lower office vacancy rate. A loan is considered criticized if it is backed by a property with high vacancy, expiring leases, maturing debt, or other red flags that could make it difficult to refinance or repay. 

While the list of distressed loans was current as of December, three of the top five loans have been written off or renegotiated. Two of the properties backed by the loans have been sold — or lost, as they were purchased for the price of the loan or far less — and one was extended, so it is no longer considered delinquent. 


International Square, $246M

The largest distressed loan makes up a good quarter of the $1 billion total. Tishman Speyer’s 1.1 million-square-foot International Square complex has $450 million of debt associated with it, of which a $246 million CMBS loan is on a watchlist due to low occupancy, according to CRED iQ. 

The three-building complex at 1825 I Street NW, initially built in 1982, was 70 percent leased during the third quarter of 2023. Tishman has signed just one new lease since, which will commence in 2025, and also opened a new and much-hyped food court called The Square in the atrium that connects the three buildings.


Station Place III (sold), $190M

The 10-story Station Place III carried the next largest loan, at $190 million at the end of the third quarter — but got a lifeline when health care giant Kaiser Permanente, a major tenant in the property, purchased it in November

Kaiser paid the bargain price of $198 million for the Downtown D.C. property — which was nearing 40 percent vacancy — while the lenders relinquished the lien on the property, according to property records. The building, part of the larger Station Place complex, had been appraised at $399 million in 2017, when owner Property Group Partners secured the loan.

The loan had been on the watchlist because 41 percent of leases at the ​​517,653-square-foot office expired in 2023 or were set to expire in 2024. That includes a lease form the U.S. Securities and Exchange Commission, which announced it would not renew its 54,405-square-foot lease that expired in September 2023, as it waits to move into its new headquarters. 


Portals I (sold), $155M

The 475,975-square-foot Portals I was in distress long before the pandemic began. The Southwest D.C. office property at 1250 Maryland Avenue SW had been purchased by a subsidiary of Starwood Property Trust back in 2017 through special servicing, and it was being targeted for sale as a residential conversion opportunity. 

A first attempt to sell hit a roadblock in July — after approvals for the conversion were in place — but the deal closed in December. An affiliate of London private equity firm Henderson Park acquired the property for roughly $26 million — far from the $155 million loan on the building. 

It was not immediately clear if Henderson Park would pursue the plan to convert the building to 450 apartments, or had other plans in mind. The firm previously purchased and rebranded the Mandarin Oriental hotel, which is part of the same complex, in 2022. Henderson Park did not immediately respond to a request for comment.


The Hub, $134M

Carr PropertiesThe Hub entered special servicing in August, as its $134 million loan was set to expire in September 2023. Carr purchased the 20-story office building at 1615 L Street NW for $230 million in 2016, assuming the CMBS loan that seller Spitzer Enterprises had secured in 2013. 

The terms on the 10-year loan featured a fixed rate of 4.61 percent and interest-only payments for the full term, according to GlobeSt. It was not immediately clear what the vacancy at the building was, or whether the owner was close to extending or refinancing the loan. Carr Properties did not respond to a request for comment.


Federal Center Plaza (extended), $130M

Donohoe Companies extended its $130 million CMBS loan on the two-block Federal Center Plaza that’s long served as FEMA’s headquarters in August. The new terms extend the loan on the 725,317-square-foot property, which initially matured in 2023, for two years, with an option to extend for another 12 months.

The loan has since been returned to the master servicer, and was no longer considered distressed as of December 2023, according to a report from KBRA. In fact, it helped reverse the national CMBS delinquency rate in December, per the report.

However, since the loan was extended, FEMA has announced that it will be relocating its headquarters in 2027, which will leave a large hole at the two-building complex at 400 and 500 Center Street SW

The remaining loans on this list are below $100 million, including a $73 million loan on one of the buildings in the Watergate complex. That loan was more than 90 days delinquent as of December, after the infamous site saw its vacancy drop to 78 percent in 2022. 

Chava Gourarie can be reached at