Beacon's DC Portfolio Moves to Special Servicing

Last year both borrower and lender wanted to maintain the status quo even as loans went underwater and property fundamentals declined. The capital markets and economy were too uncertain to risk a wholesale push into foreclosure. As the economy improves there are distinct signs that both lenders and borrowers are rethinking such pretend and extend policies--lenders, now that their balance sheets are healthier, are more willing toforeclose on assets especially if otherwise healthy properties can be had for a song. Borrowers, as may be the case with Beacon, have nothing to lose by pushing for more flexible terms now that they have a sense where property valuations have gone.

"I think we will see more of this over the next two years as more loans become troubled," Delta Associates' CEO Greg Leisch tells GlobeSt.com. In many ways, he adds, Brookfield's move to take control of Tishman Speyer's troubled DC portfolio is the flip side of the same trend. Earlier this month Brookfield Properties launched foreclosureproceedings on Tishman Speyer's office portfolio in the DC area--despite a proposal from Tishman to restructure its $570 million in debt. Tishman said as much in a statement it released at the time. "The portfolio has terrific assets and we are not surprised Brookfieldwants them."

A similar trend, from the borrower perspective, is playing out on the national level as well, Leisch suggests--pointing to General Growth Properties bankruptcy. "Borrowers are asking themselves, do I put a lot of money back into a property while it is underwater and it is uncertain how the lender will treat me in the future," he said. That appears to be Beacon's stance. A call to the company was not returned in time for publication.

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