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DC Loan to Watch After EY Signs New Lease in Virginia

The following can be placed in the category of early speculation. Over the last week or so, several news outlets have published reports on Ernst & Young signing a lease for 125,000 square feet at The Corporate Office Centre at Tysons II in Fairfax County in Virginia. We’ve been looking high and low for indications as to whether this represents new, incremental EY space, or a relocation from other space in the DC area.

At this point, we’ve been unable to definitely answer that question. However, investors may want to flag the $216.4 million 1101 New York Avenue loan. The note is split evenly between MLMT 2007-C1 (4.6% of the deal) and BSCMS 2007-PW17(4.8%). EY is listed as the top tenant in the underlying 390,994 square-foot office in Washington, DC. The firm occupies about 32% of the space in the building with a lease that ends in June 2017. EY’s current lease is for 126,570 square feet, which is about what it will be taking in Virginia.

The loan was underwritten with a pro forma DSCR of 1.06x in late 2007. In recent years, the DSCR has fallen below that level, to 0.52x in 2013 and 0.93x in 2014. The property was appraised “as-is” at $282.75 million in 2007 and $320.4 million on a pro forma basis.

The loan’s drop in DSCR can be partially attributed to the fact that second leading tenant, Dewey and Leboeuf, filed for bankruptcy and vacated its 35% of NRA a few years ago. Google later took some space in the building but moved on to other DC space a short time later.

Again, we don’t know anything definite at this point, so consider this an early word of caution.

Compliments of Trepp, LL – A member of the EACCNY.