$103M CMBS Loan on D.C. Office Portfolio Sent to Special Servicing

A $103 million commercial mortgage-backed securities (CMBS) loan backing an office portfolio in Washington, D.C., has entered special servicing, according to a report from Morningstar.

The portfolio comprises three Class B office buildings in D.C.’s Central Business District and has reported “weak performance for several years,” the Morningstar report said.

The three buildings have also not been renovated in more than 20 years, preventing them from “staying competitive in a market that is dealing with a glut of office space and decreased tenant demand,” a spokesperson for Morningstar said.

The servicer cited “imminent monetary default” as the reason for the transfer to special servicing.

The three office buildings in the portfolio, owned by an affiliate of Maryland-based development and investment firm Zuckerman Gravely, are 1020 19th Street NW, 1900 L Street NW and 1920 L Street NW, according to a filing with the U.S. Securities and Exchange Commission.

Spokespeople for Morningstar and JLL, which manages the buildings, did not immediately respond to requests for comment.

The distressed CMBS loan, originated as part of the MSBAM 2017-C33 and BANK 2017-BNK4 conduit deals, includes a $25 million mezzanine loan in addition to the senior debt, according to the report. Morgan Stanley and Bank of America were lead issuers of MSBAM 2017-C33, while Wells Fargo and Bank of America were lead issuers of BANK 2017-BNK4.

Morgan Stanley declined to comment, while spokespeople for Bank of America and Wells Fargo did not immediately respond to requests for comment.

The debt service coverage ratio for the portfolio was reported at 0.68 times in December and has remained below break even since 2021, the report said. Meanwhile, occupancy slightly rebounded to 86 percent in March, up from 78 percent in December and 69 percent in December 2023.

Current tenants of the D.C. portfolio include labor union organization BlueGreen Alliance and nonprofit membership organization Community Action Partnership at 1020 19th Street NW, nonprofit Agriculture & Food Systems Institute and medical clinic Health and Language Systems at 1900 L Street NW, and software company Foundry.ai and economic and political advisory firm Observatory Group at 1920 L Street NW.

The special service transfer of the D.C. office portfolio comes after Fitch Ratings downgraded credit ratings for 13 classes of the U.S. CMBS 2017 Vintage deal in July 2023.

Isabelle Durso can be reached at idurso@commercialobserver.com.

Nick Trombola can be reached at ntrombola@commercialobserver.com.