Trepp: SRA International’s 264,514 SF Departure Could Impact Fairfax Portfolio Loan

SRASRA International‘s plan to let its leases expire at both 4300 and 4350 Fair Lakes Court in Fairfax, VA, where it occupies a combined total of 264,514 square feet, should engage the interest of investors in a pair of 2006 CMBS deals, according to Trepp.

The buildings at 4300 and 4350 Fair Lakes Court in Fairfax are part of the the $259 million Fair Lakes Office Portfolio loan, which backs nine buildings ranging in size from 75,000 square feet to 275,000 square feet.

The entire portfolio is about 1.25 million square feet. The loan on the portfolio remains current and matures in August 2016.

But servicer watchlist notes on the loan, which is sponsored by the Shorenstein Company, indicate that SRA International, the sole tenant at 4300 and 4350 Fair Lakes Court, will not renew its leases for those buildings when they expire at the end of 2015. According to securitization documents, the SRA lease had a base rent of $15.94 per square foot when the loan was underwritten.

SRA International’s departure would follow Avaya‘s lease expiration at the end of 2013. Avaya, which leased 148,000 square feet, accounted for 12 percent of the portfolio’s overall footprint. SRA International’s leases account for about 21 percent of the portfolio’s space.

The portfolio was appraised for $337.5 million in 2006, and the underwritten debt service coverage ratio (DSCR) was 1.29x on occupancy of 99 percent.

“Through the end of 2013, financials remained solid,” writes Trepp. “DSCR for 2013 was 1.36x on occupancy of 91%. First quarter 2014 numbers showed occupancy had dropped to 79% as a result of the Avaya departure. DSCR also dipped to 1.08x for Q1 2014.”

Servicer watchlist notes do say that the largest tenant at 12701 Fair Lakes Circle, Argon St/Boeing, has renewed its 171,303 square foot lease until 2018, providing some positive news to investors. A deal has also been executed for 15,100 square feet on the third floor of 12600 Fair Lakes Circle with occupancy scheduled for November 2014. There is also activity on a 4,100 square foot 1st floor suite in the same building.

“The loan is split between CD 2006-CD3 and GSMS 2006-GG8,” writes Trepp. “The $142.45 million slice in CD3 is the third largest in that deal, representing 6% of the underlying collateral.

“The second piece, which totals $116.55 million, makes up 4.1% of the GG8 deal.”