Property Owners' Predicament

By Dana Hedgpeth and Dan Keating
Washington Post Staff Writers
Thursday, January 29, 2009

A third of the loans used to finance Washington area commercial buildings and then sold to Wall Street are coming due in the next five years, leaving investors scrambling to find new funding.

Many owners of office towers, hotels, shopping malls and apartment buildings relied on interest-only loans and planned to refinance them when they came due. That's become increasingly difficult to do in the almost completely frozen credit markets.

If owners can't refinance their loans, they could be forced to sell at a time when their properties are worth less. They could lose money and be forced to lay off workers.

About $21 billion of these loans must be refinanced by the end of 2013, according to data from Real Capital Analytics, a real estate research firm in New York that tracks 4,284 commercial loans.

"Getting money these days is like pulling an elephant through a key hole," Shelton Zuckerman, a longtime D.C. area developer, said about the credit markets in general. He said banks aren't willing to lend as much and are requiring owners to put up more cash and make personal guarantees.

While Real Capital's research doesn't show whether a loan has been refinanced or whether the property has changed hands, experts say such situations represent at most a fifth of the database and don't necessarily eliminate the owner's need for financing.

One of the biggest concerns is that some of these deals were underwritten on very rosy scenarios that assumed strong demand and rising rents for space. In a shaky economy that isn't happening, so lenders have become wary.

Take the Greenbriar Town Center in Fairfax. The mall, whose tenants include a Giant grocery store, Petco and Marshalls, has a $73 million loan that comes due in July 2010. The mall's owners typically wouldn't even start trying to find a new loan until six months before it matures, said Michael Mas, an executive with Regency Centers of Jacksonville, Fla., which owns the mall with partners. But with the uncertainty in the market, he is already talking to lenders about refinancing the mortgage and another $1.7 billion of loans that also come due in the next four years.

Two years ago, Mas said, he would have likely received 25 offers to refinance. Now he's lucky to find a handful of potential interested lenders.

Is he worried?

"That's a bit strong," he said, "but it is certainly at the top of everyone's mind."

Losing any sleep?

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