Key Bridge Marriott Developer Stopped Paying Security, Taxes Before Building Was Condemned
When police swarmed a prime property along the Potomac River on Friday to clear out squatters, it was the culmination of months of neglect after an ambitious redevelopment plan stalled out.
The building, which previously housed Marriott's longest-operating hotel, sold in early 2018 and the new owners received county approval for redevelopment in March 2020 before shutting down the Key Bridge Marriott hotel the following year.
But now the development team appears close to giving up on it.
The developers — Los Angeles real estate investors Woodridge Capital Partners and Oaktree Capital Management — stopped paying their property taxes late last year, public records show. And in recent months they stopped paying the contractor that had been providing security for the vacant building, a source close to the project tells Bisnow.
The owners owe nearly $150M in debt on the property, and while it is unclear whether they have continued paying their lender, the source said: "My understanding is ... they have decided to no longer fund the project."
Woodridge and Oaktree didn't respond to requests for comment.
The 5.5-acre property at 1401 Lee Highway sits next to the Francis Scott Key Memorial Bridge, directly across the river from Georgetown and a quarter-mile from the Rosslyn Metro station. The building opened as a Marriott hotel in 1959 and was the company's oldest hotel in operation when Woodridge and Oaktree acquired it in January 2018.
They received county approval in March 2020 for a 450-unit mixed-use project. Their plans called for renovating the main 12-story hotel building and reducing the room count from 583 to 445. The project would also demolish two four-story buildings on the site to make room for three new residential buildings reaching 16 stories.
The owners shut the hotel down in July 2021 and laid off its nearly 90-person workforce, but a Marriott spokesperson told the Washington Business Journal at the time it planned to reopen the hotel after the redevelopment.
In recent months, people without housing began using the building for shelter. And on Friday Arlington County condemned the building, deeming it "unsafe and unfit for habitation."
The act of condemning the building involved dozens of police officers, plus fire department and county government personnel who worked to clear hundreds of rooms, ARLnow reported.
The county said in a press release it cleared the property and is working to provide shelter and services for the people who had been living in it. And the county will now provide 24-hour security at the building for the foreseeable future, county spokesperson Ryan Hudson told Bisnow.
The events leading up to the county condemning the building began earlier this month, Hudson said. He said police received a report of suspicious circumstances on March 6, and the county then had multiple agencies inspect the building at which point it "became fully aware of the situation."
"On the numerous occasions that inspectors from Code Enforcement, the Fire Marshall’s Office, the Treasurer’s Office, and other County staff visited the site before Friday, March 24, we never encountered any security guards, building engineers, or property caretakers," Hudson said in a written statement.
The source close to the deal told Bisnow the building previously had security guards but the owners stopped paying the contractor at some point in recent months. The owners have also stopped paying their property taxes, according to public records.
The Woodridge-affiliated entity that owns the property, KBLH LLC, is past due on a $439K tax balance, property records show and ARLnow first reported. The taxes, due in October, were initially $380K, but the county has added a $38K penalty and $20K in interest to the balance, according to property records.
Hudson confirmed the owner still hasn't paid the taxes and said the county has been "actively pursuing collection."
The status of Woodridge's loan payments is less clear, but Bisnow can report new information on how much it owes and to whom.
Property database Reonomy lists Claros Mortgage Trust, an affiliate of Mack Real Estate Credit Strategies, as the lender on the property, and documents Claros filed with the Securities and Exchange Commission show it issued a $148.5M loan on a Virginia hotel property in January 2018.
The SEC filing doesn't identify the property or the borrower, but that is the same month Woodridge and Oaktree acquired the Key Bridge Marriott site, and the source close to the project confirmed to Bisnow that Claros is the lender.
The filing says the borrower hasn't paid down any of the $148.5M principal balance as of Dec. 31, but it doesn't say whether it is current on its interest payments. Claros didn't respond to a request for comment.
The uncertainty around the project has led one local real estate agent and political candidate to call for Arlington to step in and acquire the site for public use.
Real estate agent Natalie Roy, who is running in the June Democratic primary for the County Board, released a statement Monday saying the site represents a "tremendous opportunity for Arlington" and the county should "act swiftly."
Roy said she sees the property as ideal for affordable housing, parks, arts uses and sports fields, plus she identified the parking garage as ideal for a pickleball court.
"Land is at a premium in Arlington and when it becomes potentially available, as it has in this case, we need to make smart decisions quickly," Roy said in the statement. "The County needs to be creative by acting now to explore ways to form a private-public partnership to purchase and then re-utilize this prime property."