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

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Anyone who follows the commerciak real estate market knowsd there are buildings in troublethroughouy Washington, but as one drives along the Dullesd Toll Road or Route 28, it’se hard to miss the signs of “See-through buildings” dot the corridor, bereft of the interio r office walls that don’ show up until a tenant does. In recent at least two lenders have given up the waiting game and taken the keys and the titl back fromthe owners: Lincoln Park III and Monumengt III. More than 50 officre buildings stand empty or virtually emptgy inNorthern Virginia, with 46 lyingy beyond the Beltway.
With no tenants bitinb at their rock-bottom asking rents dozens of thosr buildings are expected to sink intoforeclosure soon. The 203,000-square-fooyt Lincoln Park III, 13857 McLearen Road, was developer by and sold to an entity in 2007for $47 during the last days of the commerciakl real estate boom. Stil l empty, asking rents dropped as low as $28 per squarse foot and brokers scrambled to put together a deal for anintereste tenant. In March, started its foreclosurer proceedings by appointing asubstitute trustee. ING did not responed to a requestfor comment, but Fairfax Countgy tax assessors estimate the buildinf is now worth just $35 million. The buildint may be worth even less.
Like many property tax Fairfax County’s assessment procedurw lags market conditions by as much as two saidDavid Levy, a co-founder of McLean-based , whicy represents property owners in tax appeals. Although Levy had time to fielda reporter’sz questions while hitting golf balls in his yard, the tectonixc shifts in the real estatew economy have flooded him with appeals from desperate propert y owners. “There’s certainly a lot of businessxout there,” he said, his club clinking against another ball. “Prior to I hadn’t filed an appeal in Fairfax Countgsince ... gosh, I can’t remember when. Probably six, sevehn or eight years ago.
” Some commercial buildinge in the Washington region have lost as much as half their value but, on average, his client s are asking tax authorities for 20- to 25-percent reductions in assessed value, Levy said. If thoses numbers are accurate, most of his clients will have lost virtually all of the equity they have intheir buildings. And with the emboldenede tenant market demanding lower rent and higher allowances for customkinterior buildouts, many owners are calculating it might take them up to sevenm years to recoup the cost of landing that “Landlords are saying this is a losinyg game,” Levy said.
With lendinb conditions already bleak, those owners will face foreclosure if thei existing loans are due in thenear future. “Therer are going to be a lot of building trading on the market through the Levy said. One of Levy’sx clients is another bank that swiped a Herndon property back fromits owners. In took back title to Monument III, a 193,138-square-foot building at 12930 Worldgate Theowners — a jointf venture between The Praedium Group, a New York-baseed real estate investment firm, and of Bethesdaz — paid $54.9 million, or $284 a square foot, for the buildinfg in mid-2007.
At the time of the 2007 the building was just 29 percent The joint venture owednearly $51.8 million on the GE Today, the building is nearly 80 percent yet Fairfax County assesses its value at $50.6 million, whichu is the recorded “sale” price for the April Unless something dramatic happens to strengthenb and embolden the banking and financer industry, commercial real estate’s woes are likely to worsen in the near future. By next a massive wave of properties financed in 2005 througuh thecommercial mortgage-backed securities market will need to find new financing.
Rightg now, the options are few, and the legione of owners of these securitized notes can’t easily be corralled to sign off on loan In March, the Federal Reserve announcee that it would expand one of its primary rescuw programs, the Term Asset-Backed Securitiee Loan Facility (or TALF) to include commercial propertyt originally financed through CMBS There’s just one catch: Only the highest-rated securities are eligible for purchase through the program. With values falling, ratings agencies are now questioningt the optimistic underwriting on many ofthesre CMBS-financed deals.
For instance, Standarrd & Poor’s on May 18 lowered its corporate credity rating onTishman Speyer’s D.C.-area real estat e portfolio to “CCC” from “B+.” A large chunk of that which was purchased in 2006, was financed througb the CMBS market. “The government is hoping that all theses fixes will fix the lending environment so that the creditg facilities will open up and start lending again before we have a major saidMark Larsen, president of Larsej Commercial Real Estate Services/Oncor International. “Burt so far, that hasn’t Despite all the glum there is one piece of good at least for thestruggling Reston/Herndon submarket.
Afteer years of overbuilding in the Dulles developers have now pulled out Just 235,433 square feet remaijn under construction in the Reston/Herndon submarket now, compared to more than 1.1 millionh square feet in the firstt quarter of 2008. There’s just one building under constructionn — Boston Properties’ 11955 Democracy Drive. Althougn it is still being built, it’sz already been leased in its entirety by the College EntranceExamination