Real Estate Alert - October 13, 2010
In one of the biggest deals in Washington this year, Invesco Real Estate last week acquired a fully leased office building near the White House from a Shorenstein Properties partnership for about $220 million.
The off-market transaction for the 331,000-square-foot property, at 1111 Pennsylvania Avenue NW, is further evidence of strong demand for core buildings in the nation's capital. The price tag of roughly $665/sf translates into a 4.9% capitalization rate - the lowest seen recently in that market. Cap rates for core office properties in Washington have ranged from 5% to 6.5%, with larger properties trending toward the upper end of that range.
The Shorenstein partnership marketed the property for two months in the spring via Eastdil Secured, but pulled the listing after bids fell short of expectations. The partnership, still advised by Eastdil, then struck a deal with Invesco, which acted via its $1.7 billion open-end Invesco Core Real Estate Fund. Market players put the price at close to $220 million.
The property, known as the Presidential Building, is fully leased to Morgan Lewis until July 2017. The law firm pays a triple-net rent of $32/sf. The local East End submarket has 42 million sf of office space that is 91.3% occupied.
The trade is among the biggest in the city this year in terms of both per-foot and outright prices. The only larger trade on a per-foot basis involved the Evening Star Building. TIAA-CREF acquired that 227,000-sf property in June from a KanAm partnership for about $793/sf, or $180 million. The capitalization rate was 5.3%. The Evening Star Building, at 1101 Pennsylvania Avenue NW, is next to the Presidential Building.
The city's largest office trade by overall price this year was Northwestern Mutual Life's purchase of the 589,000-sf Two Constitution Square from a Walton Street Capital partnership for $305 million, or $518/sf. The June transaction carried a 6.2% initial annual yield.
Shorenstein, a San Francisco fund shop, owned 1111 Pennsylvania Avenue via a partnership that included investors Mark Karasick, Victor Gerstein and David Werner. They teamed up to buy it in 2004 for $158 million, or $477/sf, from the estate of Washington surgeon and investor Laszlo Tauber.
The 14-story building is at the northeast corner of 12th Street, five blocks from the White House. When it was erected in 1967, its address was 415 12th Street NW. In 2002, the property underwent a $40 million renovation that shifted the main entrance to Pennsylvania Avenue.
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