Bankers' Group Burned
By Christina S.N. Lewis
The Wall Street Journal
October 28, 2009
A trade group for the mortgage industry has proved itself a poor judge of the commercial real-estate market.
Less than two years after it acquired a 10-story building for its Washington headquarters, the Mortgage Bankers Association is putting the property on the block for what may be a big loss. The MBA said Tuesday that it has retained commercial real-estate broker Holliday Fenoglio Fowler to sell the property.
The trade group announced that it would purchase the building at 1331 L St. in early 2007 while it still was under construction. At the time, then-MBA President Jonathan Kempner said, "We have come to the inescapable conclusion that owning our own building was the smartest long-term investment for the association."
The MBA paid $79 million for the 170,000-square-foot structure. In a letter sent to members on Tuesday, the group called continued ownership of the building, which was financed with $75 million of variable-rate debt, "economically imprudent" and said that over the long term, owning the building "would impair MBA's ability" to serve its members.
Just 50% of the building is occupied, according to CoStar Group. The MBA occupies the bulk of that space, with about 17,000 square feet leased to other tenants, the MBA said. The MBA reported rental income of just $52,000 for the fiscal year ended September 2008, according to its most recent tax filing. The group said it planned to remain in the property through 2020. Given its low occupancy and the weak market, there is little chance the MBA could recover what they spent for the property.
The MBA has been battered by the collapse of the housing and mortgage markets. It reported a deficit of $8.6 million in fiscal 2008, according to tax filings. It has eliminated 20% of its staff this year and is "very much on track to break even or have a slightly positive operating budget" in fiscal 2010, a spokeswoman said.
It was one of the most flipped buildings during the boom. Now Tishman Speyer Properties, the last investor who ended up holding Second & Seneca, an office building in Seattle's central business district, is trying to restructure its debt.
Tishman Speyer acquired the building in 2007 for $234 million. The lender recently reappraised the building for $121 million, half of the 2007 valuation and under the property's $175 million loan, according to research firm Trepp. Tishman is paying the debt service on the property.
But it isn't clear how long Tishman can continue doing that because the building lost a major tenant, Washington Mutual Inc., which leased 15% of the building, according to Trepp. Tishman declined to comment.
Second & Seneca traded hands four times in 2007. Blackstone Group bought it as part of its $39 billion acquisition of Equity Office Properties, the office real-estate investment trust controlled by Sam Zell. Blackstone flipped it to Beacon Capital Partners a few months later. Beacon sold it to Archon Group, a subsidiary of Goldman Sachs Group Inc., who sold it to Tishman, according to Real Capital Analytics.
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