Watergate Office Building Owner Delinquent On $73M CMBS Loan
UPDATE, JAN. 7, 12:45 P.M. ET: After publication of this story, Friedman Capital resolved the issue that led to the Watergate building being listed as delinquent in Morningstar, CEO Brian Friedman told Bisnow. He described it as an “administrative issue on the servicer’s part” and said his firm is current on its debt payments. He also said it has since filled the former Sage Publications space with coworking operator Launch Workplaces and "the leasing is strong."
The same office space at the Watergate complex that played a role in the downfall of then-President Richard Nixon is contributing to worsening distress in the D.C. office market.
A $73M CMBS loan tied to the 11-story Watergate Office Building at 2600 Virginia Ave. NW has fallen delinquent, according to a notice from Morningstar last week, first reported by Commercial Observer.
The 215K SF property is owned by D.C.-based private investment company Friedman Capital. The firm purchased the property in September 2019 for $101.5M from Rockwood Capital. Rockwood had owned the building for less than three years.
The delinquency comes as the building’s occupancy took a plunge over the last two years. At the beginning of 2022, the property was 100% occupied. That figure slid to 78% as of September.
Sage Publications, which departed when its lease expired in October 2022, contributed “a good bit” to the rise in vacancy, Morningstar said. The tenant had occupied 26K SF in the space where the 1972 break-in of the Democratic National Committee headquarters occurred.
The property’s most recent servicer commentary in November said the borrower hadn't made its October and November debt payments. Tenants were directed to send rent checks directly to the lender-controlled lockbox in September due to the owner's failure to meet the required 6.25% debt yield hurdle, according to Morningstar.
The building is part of a six-tower complex which includes a hotel, multifamily units and another office property.
An October 2019 filing with the Securities and Exchange Commission said the National Trust for Historic Preservation is the largest tenant, with a 38K SF lease expiring in December 2028. The second largest is George Washington University, which occupies 37K SF, and that lease is set to expire in July 2027.
Other tenants include Centennial Group International, the headquarters for KIPP DC Public Schools, coworking company Launch Workplaces and Blossom Dentistry, according to their websites.
During the fourth quarter, the D.C. office market posted a record-high vacancy rate of 22.4%, according to Savills. The high vacancy has contributed to a series of distressed situations over the last year as office owners struggle to pay back their debt.
