MBA to Book $30 Million Loss on Building

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The Mortgage Bankers Association will book a loss conservatively estimated at $30 million, give or take a million or two, as the result of the sale of its headquarters building here earlier this month.

The 10-story, 170,000-square-foot structure at 1331 L St. NW was sold for $41.25 million, according to the buyer, the CoStar Group, a provider of information, marketing and analytical services to the commercial real estate industry.

That's a bargain-basement price compared to the $79 million at which the building was listed for sale when it was put on the market in October. Or the $75 million in financing currently carried on the structure by a consortium of lenders led by the PNC Financial Services Group.It is not known what the MBA paid for the structure, which it purchased in May 2008 and occupied the following month. But in its most recent tax return, the structure was valued by the trade group at $98.6 million, which includes the cost of building out the LEED gold-certified "green" building.

Even at today's deflated commercial real estate prices, the CoStar Group says it got itself a bargain. The information company said it paid $234 per square foot, which is "less than half" the current market median of $518 per foot for Class A office buildings sold in the city over the last 13 months.

But the building has been an albatross around the neck of the financially beleaguered trade association almost from day one.

The decision to buy the building in the first place was made by three different member-led task forces during a time when real estate values were rising. But by the time the MBA took occupancy, the real estate bubble had burst and attracting tenants proved difficult. Even now, the building is only half occupied, with the MBA taking four of those five floors.

That the MBA has been unable to lease much space to other tenants in what was described as "one of the most severe recessions in a century" was cited as a major reason for the sale when the property was listed.

"The board concluded that continued ownership ... was economically imprudent and over the long term would impair MBA's ability to continue to provide our members with MBA's full range of services," the group said in a letter to members.

Many observers also believe the headquarters fiasco cost former MBA president Jonathan Kempner his job after a decade as the group's chief operating officer. Owning the building was said to be Mr. Kempner's idea, an idea he is said to have proposed to several MBA chairs over several years until he finally found one who was willing to embrace it.

Although the sale will put a multimillion-dollar dent in the MBA's reserves, current president John Courson, who shuttered his own California-based origination operation because of the mortgage market meltdown before succeeding Mr. Kempner, says the trade association is performing well.

In a letter to members, Mr. Courson and current MBA chairman Robert Story said the association, which has lost hundreds of members, as have other real estate related trade groups, is operating on a balanced budget and "continues to perform ahead of plan."

"We are operating better than budget," said MBA spokesperson Cheryl Crispen. "CREF (the group's commercial real estate conference in January) was incredibly successful, servicing (the group's servicing conference) is going to be a home run, and about 92% of members' dues for this year have already been paid."

Mr. Courson, who opposed the notion of the MBA owning its building when Mr. Kempner first mentioned the idea and had to oversee its sale at a loss to the association, said he is pleased the white elephant has finally been sold.

"I'm well satisfied that we made the right decision," the CEO said on his group's daily news feed. "And there is no one happier than I am about this. It has chewed up a lot of our time and staff meetings. I'm excited about moving forward and getting moved so that we can perform our mission."

However, as part of the short-sale agreement, according to sources familiar with the transaction who asked not to be mentioned by name for confidentiality reasons, the MBA also has promised to repay its lenders the difference between what it owes and what the building sold for. The deficiency is to be made up "over time," the source said, but with incentives to pay sooner rather than later.

Ms. Crispen would not confirm the details of the sale, saying only that "we are taking the responsibility" to make up the deficiency.

Now the MBA must find new digs for a greatly reduced workforce that has been winnowed by several layoffs. Although the group had hoped to be able to lease back "a substantial portion" of its space through 2020, under the terms of the sale, CoStar will assume immediate ownership and the MBA must vacate the building altogether.

The association says it has identified several potential downtown locations for relocation, with a target move date of June 1.

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