I don't know about you, but I was tickled to read recently of how the Mortgage Bankers Association in Washington, DC got burned on the purchase of their headquarters building.
I understand my feelings could be construed as perverse, but really, how can a sophisticated, knowledgeable lobbying group like the MBA goof on a real estate deal that would represent its 2,400 corporate members?
Now, I know the MBA leadership is human, just as we are, and that no one can guarantee how a real estate deal will work out after it has been completed.
But this was a two-year-old, 10-story,170,000-square-foot structure the MBA purchased while it was still under construction at 1331 L Street in early 2007 -- about nine months before the Great Recession struck the world.
The property is in the heart of Washington's business district, only five blocks from the White House.
The MBA paid $79 million or $464.70 per square foot - not a bargain-basement price by any stretch of the imagination, but considered the going market new-construction price in the expensive confines of the nation's capital.
The MBA financed the purchase with $75 million of variable-rate debt.
The association bought the building from the developer, DRI Development Services LLC, a wholly owned subsidiary of Transwestern Commercial Services, also based in DC.
In its marketing material, Transwestern predicted the building "will become a landmark in the community. With its glass facade and modern, iconic style, 1331 L Street will be a distinctive business and retail destination."
Transwestern also promoted the large 18,079-square-foot floor plates fronting on L street, "offering expansive office environments for small and large businesses."
Additionally, 1331 L Street "will be one of the first office buildings in DC designed for Gold LEED Certification," Transwestern boasted.
Jonathan Kempner
In a letter sent to the members in October of this year, however, MBA leaders said continued ownership of the building at this time would be "economically imprudent."
Additionally, the letter stated that over the long term, owning the property "would impair MBA's ability" to serve its members.
The big problem in the office building sector today, of course, is occupancy. 1331 L Street is 50 percent occupied. The MBA occupies about 65,000 square feet. Other tenants lease about 17,000 square feet.
Total rental income for the MBA's fiscal year that ended in September 2008 was only $52,000. The group's balance sheet for fiscal 2008 showed a deficit of $8.6 million.
But it forecasts "a slightly positive operating budget" for fiscal 2010. The association already has eliminated 20 percent of its staff this year.
The MBA leadership plans to remain in the property through 2020. Until then, it has retained Holliday Fenoglio Fowler LP, the national real estate organization, to try and find a buyer for the building.
I asked my old friend Moishe Pipuk what he thought the MBA could get for the building in today's fire-sale commercial real estate market. Pipuk claims to have been "in the construction business" at one time, which I seriously doubt.
"About a hundred dollars a square foot," Pipuk responded.
That comes to around $17 million. The MBA paid $79 million.
"Nobody's perfect," quicks Pipuk. "Not even bankers."
And that's the way I see it - for now.
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