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REA
February 12, 2020  

Starwood Nabs Office Trophy in Nashville

A Starwood Capital vehicle has agreed to buy the office component of a premier building in Nashville for just north of $260 million, a record price for the market.

The 362,000 square feet of Class-A space is in a two-year-old building at 222 Second Avenue South. Eastdil Secured is brokering the sale for the developer, a joint venture between J.P. Morgan Asset Management and Houston-based Hines.

A wide pool of bidders pushed the price some $10 million above initial expectations. The $718/sf valuation points to a capitalization rate in the vicinity of 5.3%.

The price blows away the previous record for Nashville office trades. The top previous deal was in 2013, when Highwoods Properties of Raleigh paid $152.8 million for the 525,000-sf building at 150 Third Avenue South. Eastdil advised the seller, Canyon-Johnson Urban Funds of Los Angeles.

Starwood, of Miami Beach, is acting via its nontraded REIT, Starwood Real Estate Income, which focuses on stabilized properties and debt in the U.S.

The 25-story building at 222 Second Avenue totals 391,000 sf, including 29,000 sf of separately owned retail space. The property is designated LEED gold.

The office space is 98% occupied, with a weighted average remaining lease term of 10 years. Tenants include Bank of America, law firm Burr & Forman, Ernst & Young, architectural firm Gresham Smith and Universal Music. Rents average 15% below the market’s asking rate for comparable space.

The building’s 12th floor is set aside as an amenity level, with a fitness center, conference space and a 5,000-sf outdoor terrace with a bar. The sale includes the building’s garage.

The glass-clad building is across from West River Front Park, which has an outdoor amphitheater alongside the Cumberland River. The surrounding area is dense with shops, restaurants, hotels and new residences.

The Nashville office market is benefiting from a wave of new construction and company relocations that has boosted occupancy and rents. Downtown Class-A offices are 92% leased.

The once-sleepy market has been attracting increasing interest from institutional buyers. In December, Blackstone paid nearly $145 million for the 490,000-sf Fifth Third Center. Cushman & Wakefield brokered the trade for Goldman Sachs Asset Management and Lincoln Property of Dallas.