It is a truth universally acknowledged that there are distressed deals to be done in the D.C.-area office market.
But what those opportunities look like depends on who you ask.
In an era of office disruption, there is a divide between how institutional investors and private capital are thinking about taking advantage of the sector, which is undergoing a drastic post-pandemic reset, panelists said at Bisnow’s DMV Capital Markets and CRE Finance Summit.
“You do have a handful of families who will go out and just buy cheap real estate,” The Meridian Group Chief Investment Officer Gary Block said onstage at the L’Enfant Plaza Hilton last month. “But for the institutional investors, it's more of a conviction play.”
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Block said his firm, which raises funds from institutional investors, is “very heavily focused” on the “haves” of the office market, which today are assets where landlords have leverage on location and asset type and where tenants are sticky, like in trophy and mission-critical assets.
TMG, based in Bethesda and San Francisco, last year purchased an empty 24-story trophy asset in Tysons’ Boro mixed-use community, where it has developed a host of apartments, retail and entertainment venues. This summer, TMG purchased a five-building portfolio in Chantilly for $67M, which serves the area’s surging defense and intelligence sector.
But on the other side of the coin, private players are much more zeroed-in on basis plays.
EastBanc, a 40-year-old D.C.-based family office, this year launched a new office investment strategy to take advantage of the distress. It is focused on buildings that it can buy for around $100 per SF, with the plan to overhaul them into either better office or residential.
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“Basis. That's really what we're focused on,” EastBanc Head of Acquisitions Brian Whitener said at the event.
It is a strategy that works specifically because the firm intends to own these assets for a long time.
“Our goal is not to do merchant build or to flip. It's really to try to find stuff of quality, fix it and hold it forever,” he said.
EastBanc CEO Philippe Lanier told Bisnow in April that it was working to have its first deal done by the end of the summer and saw potential for six new deals by the end of 2027. Lanier told Bisnow this summer that it has been actively bidding.
EastBanc is in good company among private investors seeking out cheap office deals in the D.C. market, with others taking down buildings in the $100-per-SF range or lower.
Garfield Investments and Broad Creek Capital paid roughly $100 per SF for a 285K SF Navy Yard building last year. This spring, Jemal Equities founder Matthew Jemal closed on a Dupont Circle building for $80 per SF after buying the loan.
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