DC Offices With Leasing Upside on the Block
A developer is shopping a Class-A office building near Capitol Hill in Washington that could fetch about $250 million from core-plus investors.
The 386,000-square-foot Republic Square 1, at 25 Massachusetts Avenue NW, was built in 2006. Its location, recent vintage and high-quality finishes give it a core profile. But its occupancy rate of 70% trails the 91% average for the Capitol Hill/NoMa submarket. Cassidy Turley is marketing the property for Washington-based Republic Properties.
Itís unclear why the developer has been slow to fill the space. Market players said that at the estimated price, a buyer that leased up the building could see a stabilized capitalization rate in the low-5% range.
The nine-story building is a block from Union Station, on the border between the Capitol Hill and NoMa submarkets. Itís close to Georgetown University Law School and numerous hotels and restaurants. Marketing materials say the in-place rents are among the highest in the submarket, which is among the cityís priciest. The average asking rent in Capitol Hill/NoMa was $48.15/sf during the first quarter, according to Cassidy Turley.
Tenants include the American Medical Association, General Motors, the National Cable and Telecommunications Association, the National Association of Counties and the U.S. Department of Justice. Less than half of the leased space comes up for renewal before 2017.
Republic Properties is retaining an adjacent parcel, where it plans to build Republic Square 2. It has approval for construction of 200,000 sf of office space.
Some $1.1 billion of Washington office buildings have gone under contract or traded hands since the start of the year, as investors continue to clamor for high-quality properties in prime locations. But lately they have shied away from older buildings that are in need of capital improvements or have significant vacancies, as federal budget concerns have put a damper on leasing by the government and its contractors. The Republic Square listing will test the appetite for a property thatís strong on quality but requires a significant leasing effort.
The offering also comes at a time when the selling block is crowded. Among the latest listings is the 299,000-sf building at 820 First Street NE, which is anchored by CNN and valued at roughly $150 million. Cassidy Turley is shopping the property for Baltimore developer†Greenebaum & Rose Associates. Cassidy Turley also has been tapped by Vornado Realty to sell the 420,000-sf Washington Office Center, at 409 Third Street SW, worth an estimated $210 million. And Eastdil Secured is marketing Shorenstein Propertiesí 248,000-sf Hamilton Square, at 600 14th Street NW, which is valued at $200 million.