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Piedmont's Patience Paid

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Piedmont's Patience Paid
35 w. wacker
The $387M pre-holiday sale of 35 W Wacker by Piedmont Office Realty Trust to a UBS advised investor was a boon for the Atlanta-based REIT (repped by Eastdil's Stephen Livaditis). In ’03, it paid $285M for its 96.5% interest in the 1.1M SF tower. (You don't need an abacus to figure out that's good stuff.) The deal also reflects the continued demand for trophy core assets, says JLL managing director Bruce Miller. Earlier in ’11, 70 W Madison sold for $345M and 22 W Washington for $185M. The grand total of $2.1B in downtown office sales last year surpasses the $60M recent trough of ’09 but doesn’t reach the $5.1B peak of ’07.
Colliers EVP Brian Nagle
Colliers EVP Brian Nagle tells us that the lease extensions Piedmont snagged with anchors Leo Burnett (600k SF, 7 years) and Winston & Strawn (400k SF, 10 years) were key to the property valuation and success of the sale. While Piedmont did well with 35 W Wacker, it came at a cost; perhaps $70/SF for each lease renewal to cover TI and broker fees. Downtown, office tenant demand is bringing the vacancy of Class-A trophies to 13%. The overall vacancy rate for all downtown offices is 15%, still a ways from equilibrium (usually considered 10% or less).
 
RCA's Dan Fasulo
Real Capital Analytics managing director Dan Fasulo sees another factor at play in Chicago’s recent trophy sales. As the top markets (NYC and DC) have become expensive, investors are willing to move out to second tier CBDs like Chicago, Denver, and Seattle. They consider these cities safe with bright prospects. (Plus they are much closer to good skiing.) Yet even Piedmont, which still owns the AON Center and 400 W Monroe, wants to redeploy some capital to coastal markets. Still, Piedmont’s patience proved a virtue. It previously marketed 35 W Wacker for $300M in August ’07.