Douglas Development Defaults on Debt Tied to D.C. Buildings

Douglas Development ran into a bit of trouble regarding a Washington, D.C.-area portfolio of more than a dozen buildings.

The developer defaulted on a loan tied to 15 properties, the Washington Business Journal reported. The borrower owes a balance of $51.7 million on the loan, according to a note shared with bondholders.

The Royal Bank of Scotland originated the loan in 2014, quickly offloading it to a commercial mortgage-backed security trust. In mid-July, the loan was transferred to special servicing, two weeks before it matured on Aug. 1. As of two weeks ago, the special servicer was CWCapital, according to servicer notes.

The loan had been no stranger to servicer watchlists over the years, making appearances since 2017. A myriad of issues have dogged the portfolio, which mostly consists of buildings in Washington, D.C. and Old Town Alexandria, Virginia.

All of the buildings affected are either office or retail buildings, or a combination of the two. The largest of the buildings backing the loan is a 40,000-square-foot office property in D.C.’s Brentwood neighborhood. The portfolio’s retail tenants include Lululemon and Sherwin Williams.

The D.C.-based landlord did not respond to the publication’s request for comment.

The office market in the nation’s capital is particularly troublesome. The district’s market recently recorded its highest vacancy rate ever as remote work and high interest rates drag down property values.

Washington office loans have the seventh-highest rate of default in the country, according to recent data from credit-research firm KBRA Analytics. In the first quarter, roughly 39 percent of securitized Washington office loans were either in default or at risk, according to the firm.

In June, the $243 million loan backing Beacon Capital Partners’ Lafayette Centre office complex in the district was sent to special servicing.

— Holden Walter-Warner