Offices in downtown Washington D.C. ready for foreclosure auction

By Elias DaSilva | September 12, 2024.

Because the owners of an office building in downtown Washington D.C. have been unable to pay their mortgage, the property is scheduled for a foreclosure auction next month. It is a 123,000-square-foot, 10-story office located at 1750 H St. NW, just two blocks from the Farragut West metro station and three blocks from the White House, and it is scheduled for foreclosure on June 20 at the office of Alex Cooper Auctioneers Inc. According to the foreclosure notice, there is an outstanding balance of $32.7 million on the promissory note held by State Farm Life Insurance Co., which is due on August 1, 2027.

Although the property, built in 2002, is among the office buildings facing lower occupancy and decreased cash flow, it was recently renovated with a new outdoor terrace, a new lobby, a glass-enclosed conference center, and a multifunctional lounge for tenants. These improvements attracted the World Food Program USA, which established its headquarters there in 2022. The number of vacant offices in the building is currently unspecified.

Office Properties Income Trust (NASDAQ: OPI), a partial owner of the property, revealed in its first-quarter report that the company did not have enough cash flow to pay its monthly debt service, resulting in its default.

The building was purchased in 2010 for $65 million by a joint venture between First Potomac Realty Trust and AEW Capital Management. Government Properties Income Trust acquired First Potomac in 2017 for $1.4 billion, later merging with Select Income REIT in 2018 and changing its name to OPI. Representatives of both companies declined to comment on the matter.

The company OPI removed the property from its financial records at the end of 2023, noting in documents filed with the SEC that its partner “failed to fund a $600,000 capital request and was in default under the joint venture agreement as of December 31, 2023.” The trust “determined that the estimated fair value of our investment in our 1750 H Street, NW joint venture was below our carrying value and that the decline was not temporary based on current market conditions and the default by our joint venture partner.”

In the final days of April, State Farm filed a lawsuit in the Superior Court of the District of Columbia, alleging that the borrower had failed to make its monthly interest payment of $104,533.33 in February, March, and April. On April 17, State Farm issued a written notice of default and accelerated the loan’s maturity date. On May 22, Superior Court Judge Maurice Ross appointed Transwestern Carey Winston LLC as trustee and ordered Transwestern to take immediate possession of the property.