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Northern Virginia Office Owner Defaults On $51M Loan

A pair of office buildings in Herndon, Virginia, have been added to the growing number of distressed situations facing the struggling asset class.

Dulles View North and South at 2551 and 2553 Dulles View Drive in Herndon

The owner of the properties at 2551 and 2553 Dulles View Drive, Gemini Rosemont Realty, was unable to refinance or sell the property ahead of the April 1 maturity date for its $51.2M CMBS loan, and the loan was transferred to special servicing "due to imminent maturity default," according to Morningstar.

The 356K SF office property near Dulles International Airport has seen its occupancy fall from 94% when the loan was issued in 2013 to 80% this year, and its net cash flow fell from $6.1M to $5M over that time, according to Morningstar. The property lost Time Warner as a tenant in 2018, according to Morningstar. 

“This is a very good example of what’s going on in the market,” Morningstar Head of CRE Analytics David Putro said in an email to Bisnow.

"While this loan hadn’t met underwritten expectations, the borrower had kept it current and had backfilled some of the vacant space heading up to maturity. But the in-place cash flow and higher interest rates make it simply unable to be refinanced in this environment.” 

Gemini Rosemont and JLL, the brokerage firm leasing the property, didn't respond to requests for comment. 

The loan is now being serviced by Greystone. The borrower had an initial proposal for an extension rejected, and it is expected to file another proposal for an extension this month, according to Morningstar. 

Gemini secured the loan in 2013 for $60M. It has since been amortized to $51.2M at an interest rate of 4.625%, according to Morningstar.

The property's tenants include software companies Procentrix and System Soft Technologies, as well as U.S. law enforcement and national security support company FSA Federal, according to their websites. 

Office properties backed by CMBS loans reached a 4.5% delinquency rate in June, compared to 1.68% a year prior, according to Trepp. June’s delinquency rate was 48 basis points up from May's rate of 4.02%, which was the highest since 2018, according to the information analytics company. 

Experts say the outlook is only expected to get worse as the year progresses. A wave of CMBS loans that were initiated in 2013 have maturity dates this year, and many lenders have been unwilling to put more money into office properties.

Distressed situations in the D.C. area have also included Monday Properties defaulting on a loan backed by a billion-dollar Rosslyn office portfolio in May, and Brookfield in April defaulted on a $161M loan that was tied to 12 buildings, primarily in the D.C. suburbs. 

“This is just the tip of the iceberg for office delinquencies,” Polpo Capital Management founder Dan McNamara told Bloomberg. “As $35 billion in CMBS office loans are scheduled to mature this year and the refinancing market is effectively shut to this asset class.”