$660M Loan Tied to Federal Government Portfolio Sent to Special Servicing

The debt behind a nationwide office and industrial portfolio leased to the federal government is in jeopardy and has been transferred to a special servicer ahead of its August maturity. 

NGP Group, which owns the 41 properties, is facing imminent default on the $660 million commercial mortgage-backed securities deal tied to the 2.6 million-square-foot portfolio, according to a report released Monday from Morningstar Credit. The debt’s upcoming maturity is in August. 

Barclays and an affiliate of Cantor Fitzgerald provided the 10-year loan in 2015, according to Fitch Ratings.

The portfolio are all single-tenant buildings, including 39 offices and two industrial sites, across 19 states. The highest concentrations of the properties are in Florida, Texas, Kentucky and Virginia. 

The portfolio is occupied by 16 agencies, with three in particular — the FBI, Citizen and Immigration Services, and the DEA — accounting for nearly 55 percent of the portfolio’s total rent obligations, per Fitch. That includes 1000 Falls Run Drive, a roughly 165,000-square-foot industrial building leased to the FBI in Fredericksburg, Va. 

Representatives for NGP and for the General Services Administration (GSA), which manages the federal government’s real estate portfolio, did not immediately respond to requests for comment. 

The performance of the portfolio has been mostly strong, per Morningstar, and the special servicer noted that a modification or extension request on the debt is likely, though the GSA’s aggressive moves lately to downsize its portfolio could complicate possible refinancing options. 

Federal agency leases managed by GSA are generally quite stable, at least historically. They typically have longer term lengths, lasting upwards of 15 years or more before renewal, and don’t contain “termination for convenience” clauses, unlike most other government contracts. 

GSA leases instead operate under a “firm term” and “soft term” system; while under the firm term, agencies cannot legally terminate a given lease without entitling the landlord to damages, unless they can prove a valid reason, such as maintenance failures. Leases under the soft term, meanwhile — the shorter of the two and which begins after the firm term ends — do allow for convenience termination, typically within 90 to 120 days of written notice. 

Nick Trombola can be reached at [email protected].