WASHINGTON, DC—Two weeks ago the Department of Justice pulled the trigger on its long-awaited decision to lease 839,000-square feet somewhere in the area. But for every winner in a deal, there is also a loser. The winner in this case, obviously, is StonebridgeCarras, who will be able to complete the last phase of its sprawling Constitution Square in NoMa because of the lease.
Today we talk about the loser, or at least one of them. By that I mean not the developers that competed for, and lost the DoJ bid, but rather the DOJ's existing landlords who will be losing a key tenant as a result of this deal. One of them is New York City-based LHL Realty, which owns 601 D Street NW, also called The Patrick Henry Building. It is a 541,518 square foot property fully occupied, for now, by the Department of Justice.
The building still has a loan on it -- $120 million, according to Trepp -- sizeable enough for the company to issue an alert. The Patrick Henry loan, Trepp reported, represents 13.5% of the remaining collateral behind JPMCC 2006-CB14.
It wrote that "The DOJ occupies 100% of the space in the 573,830 square-foot building. Servicer data still indicates that the GSA lease expired in August 2015, but for the first time this month, servicer watchlist comments indicate that the lease has been extended to October 2018. Those same notes indicate that the borrower is working to secure refinancing in order to payoff the loan before maturity."
Yes, it's true, general counsel for LHL Realty Bennet Schonfeld, told GlobeSt.com.
"We currently have a 38-month extension on our current lease and we are in the process of finalizing a deal with a major financial institution for refinancing."
He said the company is focusing on getting the refinancing in place and then will consider the leasing situation including "exploring all options" after the government vacates.
The company is making the right move, Sean Barrie, research analyst with Trepp told GlobeSt.com. "The loan has been performing well to date" and with the history of financial stability, plus refinancing put in place, a new tenant will be easier to find.
The search, though, won't necessarily be easy, unless the company is planning an overhaul of the property or there is another major government tenant waiting in the wings. Most new office leasing -- especially leases over 100,000 square feet -- in the District gravitates to trophy assets or at least newer buildings.
The Patrick Henry Building was constructed in 1973 and completely renovated in 1997. About two years ago it secured LEED for Existing Buildings: Operations & Maintenance (LEED EB:OM) Silver certification, a USGBC designation.
In many ways, the note about LHL Realty is typical of the overall CMBS environment in DC -- meaning that when potential problems do appear it is usually due to a one-off or specific event, such as a major lease recalibrating space.
More or less, the CMBS delinquency rate for DC area properties has remained in the 5% range this year, except for one month, August, when it was 6.21%. The latest data, according to Trepp, puts it at 5.68% for September, which is fairly decent for the area, Barrie said.
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