Beacon Capital seeks to restructure debt to hang onto area properties

By Jonathan O'Connell
Monday, July 12, 2010

It appears that Beacon Capital Partners, a private Boston firm, is looking to hold onto nearly a dozen high-end Washington office properties, seeking to restructure the financing as the market begins to stir.

Beacon acquired 11 properties in D.C. and Northern Virginia in 2007 as part of a $6.35 billion purchase of part of Blackstone Group's real estate portfolio.

But Beacon, which has raised five real estate funds, made its buy at the peak of the market. For 20 total properties -- the 11 local ones and another nine in Washington state -- the company borrowed $2.64 billion, which is about $200 million more than they are probably worth at present even with improvement in the market, according to the Realpoint credit rating agency of Horsham, Pa.

As of June, the company was current on its payments on the debt, but in April the portfolio was placed with a special servicer, Centerline Servicing, to work out a restructuring of the financing. In March, the company defaulted on a loan payment it owed on Columbia Center, a 76-story Seattle tower that is the tallest building in the Pacific Northwest.

Onlookers expect that Beacon will stave off foreclosure and hold onto the properties.

"Ultimately we would expect some form of a modification and restructuring of the debt between Beacon and the special servicer," said Frank Innaurato, managing director of Realpoint.

How the restructuring will look and whether it will succeed is unknown. The company declined to comment on its discussions with Centerline. Dane Rasmussen, Beacon vice president, said only that the company is "an active investor in the D.C. market and continues to have conviction in the greater D.C. market."

Beacon's 11 properties are the sort of high-end, downtown buildings that have attracted international or institutional buyers in recent months. There is Market Square, at 701 and 801 Pennsylvania Ave. NW, and Lafayette Center, the three-building set on 20th and 21st streets NW, as well as the Booz Allen Hamilton headquarters buildings in Tysons Corner and 11911 Freedom Dr. at Reston Town Center. In all there are four in D.C., three in Arlington, two in Reston, one in Tysons Corner and one in Vienna.

If the properties were to go up for sale, it would further heat a market that has suddenly become very busy. Five buildings sold in D.C. in the second quarter of 2010, up from just two in the first quarter. Among the recent sales are TIAA-CREF's purchase of the Evening Star building, at 1101 Pennsylvania Ave. NW, for $180 million, and Northwestern Mutual's purchase of Two Constitution Square, a brand-new, 589,000-square-foot office building in NoMa, for $305 million.

Since the beginning of 2009, Washington area office sales have totaled $3.05 billion, second nationally only to New York City's $4.17 billion, according to CoStar Group.

Innaurato said it's possible that Beacon could default on payments in coming months, but for interested buyers with cash, he offered only disappointment.

"I don't really see any indication that they will try to start selling," he said.

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