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REA
November 14, 2018  

CBRE Global to Buy Warner Building in DC

CBRE Global Investors has agreed to buy the Warner Building in Washington from a JBG Smith partnership for about $380 million.

The 612,000-square-foot property, at 1299 Pennsylvania Avenue NW, was pitched as a value-added play because of the impending departure of a major tenant. The price translates to $621/sf. The seller is a partnership between JBG Smith and Canada Pension Plan. Eastdil Secured is the broker.

The deal comes just as another big office building in the city has changed hands. PRP Real Estate Investment announced last Thursday that it had teamed up with GMF Capital to acquire the 331,000-sf Presidential Building, at 1111 Pennsylvania Avenue NW. The seller was Invesco Real Estate of Dallas. PRP didn’t disclose the price, but market pros said it was about $331 million. The $1,000/sf valuation works out to an initial annual yield of about 5%. Eastdil also brokered that transaction.

Both properties are in the East End submarket. They are near the White House, in an area where leasing demand is stronger than in the overall submarket.

The transactions whittle down the crowded lineup of offerings in Washington, where more than a dozen properties have hit the market since the summer. They also are a vote of confidence in the market by investors, given that a burgeoning construction pipeline is expected to put downward pressure on occupancy rates and rents.

Los Angeles-based CBRE Global will have some space to fill in the Warner Building. While the 13-story property is nearly fully leased, the occupancy rate will plummet to 71% in February 2020 when law firm Baker Botts exits. The weighted average remaining lease term is 8.5 years for the other tenants, which include Cooley and several other law firms, General Electric and ONE Campaign.

The building is named for the historic Warner Theater, which dates back to 1924. The 2,000-seat theater was incorporated into the office building when it was constructed in 1992. The theater, which pays rent, is on the west side of the building and has a separate entrance at 513 13th Street NW.

JBG, based in Chevy Chase, Md., was formed a year ago when Vornado Realty acquired JBG Cos. of Chevy Chase, combined it with its Charles E. Smith unit and spun off the merged operation as a public REIT. Vornado had acquired 1299 Pennsylvania Avenue in 2005 for $319 million. The New York REIT sold a minority interest in the property to Canada Pension Plan in 2010.

Meanwhile, PRP, a Washington fund shop, will add to its portfolio of office and multi-family properties in the Washington area with the acquisition of the Presidential Building. Its partner, GMF, is a New York private equity firm.

The occupancy rate is unknown. Law firm Morgan Lewis fully occupied the building from 2002 to 2014. It then renewed its lease until 2032, but reduced its footprint to 80% of the space.

The 14-story property, at 12th Street, is one of the few privately owned buildings along Pennsylvania Avenue between the White House and the U.S. Capitol. It was constructed in 1967, redeveloped in 2001 and substantially renovated last year. Some $35 million was spent on improvements since 2010.

Invesco paid a Shorenstein Properties joint venture $220 million for the property in 2010, when the economic recovery was just beginning.