JBG Smith said it doesn’t expect a financial loss stemming from a $356M legal judgment made against it for alleged construction defects and consumer protection violations at an upscale Northwest D.C. condo tower.

In second-quarter earnings results released Monday, the Bethesda-based REIT reiterated its intent to appeal the judgment and said it believes the decision to hold it liable “is not justifiable.”

But JBG Smith said its liquidity could be impacted if it has to contribute bonds to pause the judgment pending appeal.

The company delayed its earnings release and quarterly letter from JBG CEO Matt Kelly by about a week after the D.C. Superior Court issued its July 31 judgment.

The case, which dates back to 2020, revolves around the historic Wardman Tower next to the Woodley Park Metro station. The property was renovated in 2017, and its 32 condominium units subsequently sold for an aggregate of $115M. 

The condominium association for the residences sued JBG Smith Properties, four JBG affiliates and an affiliate of New York-based Plaza Construction, claiming that they misrepresented the units as “well-built” when the building allegedly had defects related to its elevators, electrical system, foundation and more, the Washington Business Journal reported, citing court records. JBG said in its earnings release the lawsuit involved allegations of construction and design deficiencies, misrepresentations and omissions, and consumer protection claims.

The D.C. Superior Court found $118.7M in damages and ordered that the defendants pay triple that amount.

JBG Smith said Monday that “while we believe it is not probable a loss will occur, the existence of the judgement indicates that it is reasonably possible that a loss could occur” — in a range between $0 and $356.1M, plus attorneys’ fees. 

The REIT should not have been named as a defendant; it has no liability, and it plans to defend itself “vigorously” in an appeal, Kelly said in a letter to shareholders accompanying the earnings release.

If upheld, the ruling could disrupt “the principles of corporate separateness relied upon by companies across Washington, DC and throughout the United States,” he wrote, adding that it “could also discourage future real estate investment in the District and constrain development of new housing, particularly for-sale housing and adaptive-reuse conversions of older buildings to residential.” 

JBG Smith owns stakes in 38 assets, including 15 multifamily and 22 commercial properties. The multifamily assets total 6,519 units, and commercial assets total 7.3M SF. 

During the second quarter, JBG Smith recorded a net loss of $59.2M, or $1.03 per diluted share. That follows 12 straight quarters of reporting net losses, according to the WBJ.

The REIT's multifamily portfolio was 89.6% leased and 86.6% occupied, and its office portfolio was 78.0% leased and 75.4% occupied. Its same-store net operating income declined by 4% during Q2.