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Loans On 2 NoVa Office Buildings Went Delinquent In April

Northern Virginia's long-elevated office vacancy rate appears to be taking its toll on two more properties that had CMBS loans issued before the Great Recession. 

The Crown Ridge office building at 4035 Ridge Top Road in Fairfax

Loans on two office buildings in Fairfax and Alexandria became delinquent last month and were among the five largest newly delinquent CMBS loans in the U.S., according to Trepp

The first is a $33M loan on Crown Ridge at Fair Oaks, an office building at 4035 Ridgetop Road in Fairfax. The eight-story, 191K SF building is owned by a subsidiary of Colony Northstar, which acquired it in 2007 for $62.3M, property records show. 

The Crown Ridge loan was transferred to special servicer C-III Asset Management in November. The building, constructed in 1989, is roughly 80% occupied, according to Trepp. Its largest tenant, Fair Issac Corp., has a 33K SF lease that expired April 30. 

The Poplar Run office building at 5285 Shawnee Road in Alexandria

The other new delinquency is a $28M loan on Poplar Run, an office building at 5285 Shawnee Road in the Alexandria section of Fairfax County. The 150K SF building is owned by an affiliate of Beco Management, which acquired it in 2007. 

The Poplar Run loan was transferred to special servicer LNR Partners in November 2016. Also constructed in 1989, the building is about 82% occupied, and half of its existing leases expire within the next year. 

The special servicers for both properties are trying to renew tenants and sign new leases to salvage the buildings before the loans become losses. The impact of a loss would vary for both loans given the nature of the CMBS deals they are bundled in. The Crown Ridge loan makes up about 75% of the remaining collateral for a 2005 CMBS loan, while the Poplar run loan makes up 12.6% of the collateral for a 2008 CMBS deal. 

"Since Crown Ridge makes up 75% of the remaining collateral, any sort of loss will then be incurred by the bondholders in the backing deal since there are only so many left, there's more of an impact if it goes to loss," Trepp analyst Sean Barrie said. "Poplar makes up less, so fewer bondholders could be affected." 

The D.C. Metro area's CMBS delinquency rate was 11.47% as of April, according to Trepp, down from 13.2% a year earlier. D.C. has suffered a much higher delinquency rate than other large cities, which experts have attributed to the government downsizing its footprint, high vacancy rates and stagnant rents. 

The recent improvement, which mirrors the national trend of falling delinquency rates, comes from the resolution of many pre-recession loans that have come due over the last year amid the "wall of maturities" that some worried could hurt the CMBS market.

"There are still some leftover loans from that wall of maturities period to be resolved, but on the whole I think we got through it," Barrie said. "I think borrowers took advantage of interest rates being favorable to lock up refinancing before maturity ... I think performance was better than people initially feared."

The majority of new loans issued after the recession have had much tighter underwriting standards, making them less likely to become delinquent. New CMBS issuances have been soaring in recent months, with the Q1 total of $19.4M up 55% from the prior year.