Last year both borrower and lender wanted to maintain the statusquo even as loans went underwater and property fundamentalsdeclined. The capital markets and economy were too uncertain torisk a wholesale push into foreclosure. As the economy improvesthere are distinct signs that both lenders and borrowers arerethinking such pretend and extend policies--lenders, now thattheir balance sheets are healthier, are more willing toforeclose onassets especially if otherwise healthy properties can be had for asong. Borrowers, as may be the case with Beacon, have nothing tolose by pushing for more flexible terms now that they have a sensewhere property valuations have gone.

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"I think we will see more of this over the next two years asmore loans become troubled," Delta Associates' CEO Greg Leischtells GlobeSt.com. In many ways, he adds, Brookfield's moveto takecontrol of Tishman Speyer's troubled DC portfolio is the flipside of the same trend. Earlier this month Brookfield Propertieslaunched foreclosureproceedings on Tishman Speyer's officeportfolio in the DC area--despite a proposal from Tishman torestructure its $570 million in debt. Tishman said as much in astatement it released at the time. "The portfolio has terrificassets and we are not surprised Brookfieldwants them."

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A similar trend, from the borrower perspective, is playing outon the national level as well, Leisch suggests--pointing to GeneralGrowth Properties bankruptcy. "Borrowers are asking themselves, doI put a lot of money back into a property while it is underwaterand it is uncertain how the lender will treat me in the future," hesaid. That appears to be Beacon's stance. A call to the company wasnot returned in time for publication.

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Rating agency reports, though, note that Beacon does not want topay for capital and leasing expenses from its own funds; CenterlineServicing is the special servicer. Properties in the portfolio thathave gone into special servicing include: Market Square at 701& 801 Pennsylvania Ave., NW; the Army & Navy Club Buildingat 1627 Eye St., NW; Liberty Place at 325 7th St., NW; One, Two andThree Lafayette Centre on 21st Street, NW; Reston Town Center onFreedom Drive; American Center East & West in Vienna, VA; 11111Sunset Hills Rd. in Reston, VA; John Marshall I & III inMcLean, VA; E.J. Randolph I & II in McLean, VA; the PolkBuilding in Arlington, VA.; the Taylor Building in Arlington, VA;1616 N. Fort Myer Dr., in Arlington, VA; and 1300 N. 17th St., alsoin Arlington, VA.

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