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REA
April 17, 2019  

2 Prime Office Buildings Hit the Block in DC

Separate owners are marketing two trophy-caliber Washington office buildings with a combined value of more than $500 million.

The properties, both listed with Cushman & Wakefield, are across the street from one another, a couple of blocks north of the White House. The larger of the two — the 405,000-square-foot building at 1625 Eye Street NW — is 75% leased and being pitched as a core-plus opportunity. It’s expected to draw bids in the vicinity of $290 million, or $716/sf. The ownership team includes HSBC and Edge Fund Advisors.

Meanwhile, Blackstone is shopping the 217,000-sf building at 815 Connecticut Avenue NW as a core play, due to its 95% occupancy rate and stable rent roll. It is valued at roughly $250 million, or $1,152/sf.

The properties are part of a “micro-market” of Class-A offices, straddling the border between the Central Business District and East End, that tend to outperform comparable space in those submarkets because of their proximity to the White House. The listed buildings have high-end finishes and amenities, including fitness centers and rooftop decks with views of the White House and Washington Monument.

The HSBC team shopped a majority stake in 1625 Eye Street two years ago. At the time, the occupancy rate was 90% and the building had an estimated valuation of $320 million. But the listing was pulled to shore up the rent roll when a large tenant opted to vacate. Since then, 137,000 sf of leases have been signed, lifting the weighted average remaining lease term to 8.4 years. Tenants include law firms O’Melveny & Myers (100,000 sf until 2028) and Kutak Rock.

The vacancy is concentrated on three contiguous floors totaling about 90,000 sf — one of just eight large blocks of space immediately available in the Central Business District, according to marketing materials.

Completed in 2003, the 12-story building was designed by architectural firm Skidmore Owings as the headquarters for Union Labor Life, now known as Ullico, which is still a tenant. There is 20,000 sf of street-level retail space that includes restaurant BLT Steak. The building also has a six-level underground garage with 425 spaces. It’s designated LEED gold.

Edge, a Washington fund operator, partnered with HSBC to purchase a 90% stake in the building from Brookfield Property of New York in 2009. That transaction valued the property at around $226 million. Brookfield’s 10% stake is included in the offering.

The building at 815 Connecticut Avenue underwent a $30 million renovation in 2013 that upgraded the 1964-vintage, Class-B offices to compete with top-tier properties. The project also improved energy efficiency and was cited as a showcase for the Better Buildings initiative led by the U.S. Department of Energy.

Blackstone acquired the 12-story building in 2016 from Alecta Real Estate as part of a $1.7 billion deal for 21 office and retail properties. JLL represented the Swedish pension manager on the transaction.

The weighted average remaining lease term is 10 years. Law firm Baker McKenzie occupies 43% of the space on a lease that runs until 2033. Other tenants include Cornell University, Sumitomo and United Airlines. There are 143 parking spaces.

Occupancy rates for Washington offices are holding up fairly well despite a heavy construction pipeline, which has put downward pressure on asking rents for newer properties. At the end of the first quarter, the city’s occupancy averaged 87%, down 90 bp from a year earlier. Cushman expects 4 million sf of office space to come on line this year, with about 70% of it preleased.