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Loan On 470K SF Reston Office Hits Special Servicing Ahead Of July Maturity

An $84M CMBS loan backed by two office towers near the Wiehle-Reston East metro station was transferred to special servicing this month ahead of its July maturity date, according to Morningstar

Plaza America Tower III, one of two office buildings in a Reston, Virginia, office park that went into special servicing this month.

Atlantic Realty Cos. has owned the buildings, Plaza America Towers III and IV, since it developed them in 2001. The towers, which reach seven and 13 stories and have a combined 469K SF of office space, are part of a five-building business park.

Morningstar Credit Information & Analytics reported the move to special servicing Friday in a roundup of properties in the same situation, part of an uptick in loans dealing with issues this year. In March, the percent of the loan category going into special servicing saw the largest month-over-month increase since August 2020, according to Trepp data. 

At the time the Plaza America towers were sent to special servicing, the buildings were at 85% occupancy, down from 95% when the loan was issued in 2013, according to Morningstar. Two tenants vacated in 2018 and more rollover is expected in the next few years.

Law firm Harness, Dickey & Pierce’s 26K SF lease expires at the end of this month, according to Morningstar. Tech talent firm Revature’s 32K SF lease is scheduled to expire in May 2025, followed by Science Applications International’s 105K SF lease, which is up in July 2025. 

Those three tenants account for 35% of the towers’ square footage, according to Morningstar. The financial services company also highlighted that information tech company Unisys previously leased 60% of the property when the loan closed, but it "downsized significantly" in 2017 and 2018.

At the end of 2022, net cash flow was up slightly year-over-year, but it was still 19% below the cash flow at the time the loan was issued. At the moment, Atlantic Realty Cos. is able to make monthly loan payments, according to Morningstar, but the move to special servicing reflects the looming maturity and the broader challenges in the office sector. 

Goldman Sachs was the original lender for the properties, a loan that was sold into a CMBS trust, represented by LNR Partners. The borrower also has a separate $15M mezzanine loan. 

The buildings are part of a low-lying, office-centric portion of suburban Virginia, about 20 miles from downtown D.C., which developers and city officials are trying to reposition as a mixed-use destination. A few blocks away,  Isaac Newton Square, a 32-acre office park, is set to be redeveloped into 2,000 multifamily units spanning 10 blocks, after it was demolished late last year. 

Atlantic Realty didn't respond to requests for comment. Based in Vienna, Virginia, the company owns and manages mixed-use, office and commercial properties in Maryland and Virginia.