What do the RA Headquarters and World War I Have in Common? 'Tranch Warfare'

Hey, remember that time the Reston Association moved its headquarters to shiny new office space with child labor cubbies and lots of room for filing cabinets, only the building owner was on the verge of foreclosure?

Yeah, that was awesome. Well, after narrowly escaping being sold at auction, the building is now part of a protracted battle among its creditors.

Ownership of four Reston office buildings has become entangled in a legal dispute between three New York-area real estate funds after a local developer purchased the properties and defaulted on its loan payments.

D.C.-based developer Penzance Cos. bought a six-building, 750,000-square-foot Reston office portfolio in 2007, near the peak of the real estate market, for $202.5 million.

The buildings make up parts of two office plazas, Parkridge Center and Reston Corner, and Penzance found some success leasing them, signing tenants to 200,000 square feet of space. But Penzance began missing payments on a $107 million loan it took out to finance the purchase of four of the buildings, allowing one of its lenders, a fund of Garrison Investment Group of New York, to assume ownership last fall. A Penzance spokeswoman said the developer no longer has any role in owning or managing the four buildings but declined to comment further.

With Penzance out of the picture, Garrison and other lenders on the original deal began battling for control of the properties... Garrison, though not the main lender on the buildings, used Penzance's default to take control of ownership last fall. Ben Thypin, senior market analyst at research firm Real Capital Analytics, said Garrison "took over the properties with the intention of holding them."

As new owner of the buildings, however, Garrison assumed the $107 million mortgage that Penzance had taken out and almost immediately was asked to pay up by lenders higher in the food chain -- igniting a battle for distressed assets that commercial real estate professionals commonly refer to as "tranch warfare."

As we've said before, this isn't likely to immediately affect the RA, as a tenant with a long-term lease is among the most attractive assets in commercial real estate. We do hope, however, that RA staffers don't start developing nasty cases of "tranch foot."

But if you're like us, there's nothing you enjoy more than learning about the innerworkings of giant equity firms and banks. So get ready for some juicy real estate gossip to be DISHED!

With Garrison under assault, owners of the larger mortgage, from funds assembled by the financial giant UBS and from Normandy Real Estate Partners, a Morristown, N.J., private equity firm, scheduled a foreclosure auction in December to assume control of the properties, according to court documents. Normandy's holdings in the Washington area include more than a dozen office buildings, including 1775 Wiehle Ave., in Reston.

On the eve of the Dec. 15 auction, however, Garrison put the four properties into bankruptcy, protecting them from seizure by creditors. UBS and Normandy filed suit in New York State Supreme Court two weeks later, on Dec. 29, saying "the borrowers' filing for bankruptcy makes Garrison, as guarantor, fully liable for the entire unpaid balance of the loan." They requested immediate payment of the entire loan, including interest, a total of $111.5 million.

All three investment firms, through executives, attorneys or spokesmen, declined to comment.

Oh no, they DIDN'T! Who needs Us Weekly when we can read about slapdowns like this?