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Can foreclosure be a valid commercial real estate strategy?

Predicting the next hot commercial real estate location may seem more like art than science. Industry-specific fluctuations can also make or break a new investment. Vornado Realty Trust, a New York-based Real Estate Investment Trust, or REIT, learned this truth the hard way about a northern Virginia investment property.

The REIT recently allowed an eight-building office complex in Fairfax County, called Skyline, to go into foreclosure. According to reports, the 2.6 million-square-foot office complex was only half-occupied. Consequently, the Skyline office complex was not drawing in enough revenue to cover its $678 million loan. After the foreclosure, the REIT’s balance sheet will reflect a much better outlook. In addition to being free of the loan, the REIT will report a non-cash gain of around $486 million.

One commentator suggests that the 2012 Defense Base Realignment and Closure decimated the type of government contractor and subcontractor tenants that would otherwise have been prospective commercial tenants of the Skyline property. Notably, no commercial real estate developers even showed up at the auction to bid on the property. Without any competing bids, the special servicer of the property was able to buy it for just $200 million.

Our northern Virginia-based law firm has decades of experience in the commercial real estate market. We have helped clients through many market fluctuations, often politically related. Indeed, another change may be coming with the new administration.

Our advocacy goes beyond just drafting the legal documents needed to purchase, develop or lease commercial real estate. We put our experience to good use in providing sound guidance and support to prospective commercial buyers and landlords.

Source: Commercial Property Executive, “Vornado Disposes of Skyline Properties in Virginia,” Gail Kalinoski, Dec. 29, 2016

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