Just under a dozen people gathered in the upper northwest D.C. office of Alex Cooper Auctioneers Thursday afternoon to witness the fate of a vacant 12-story office building on downtown's K Street corridor.
While the room was modest, the players were big. The foreclosure auction involved two of the largest private U.S. real estate firms, as Brookfield had defaulted on its $120M loan provided by Starwood for the 1200 K St. NW building.
It is the latest in a steady march of foreclosure auctions for D.C. office buildings over the last year — with at least two more scheduled this summer — as the city's office market faces unprecedented distress.
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After 10 minutes of reading the fine print disclosures and descriptions of the property on the block, Alex Cooper Vice President Paul Cooper opened bidding at $44,026,439 — the opening bid Starwood placed as the lender.
Cooper asked if there were any takers for a $44.3M bid. The room was silent, and after three calls, he announced the auction had been won by Starwood.
The attorney representing Starwood, Duane Morris LLP's Laurie Furshman, told Bisnow her client had no comment. Brookfield declined to comment.
There were just a handful of attendees who signed up to be eligible to place bids, including Douglas Development Vice President Matthew Jemal.
“We're deal junkies,” Jemal told Bisnow.
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Starwood has been signaling plans to pursue an office-to-residential conversion at the property since at least last summer via a “consensual transfer.”
In the REIT’s end-of-year earnings call, CEO Barry Sternlicht addressed the situation, referring to an “unimaginable amount of equity” its borrowers lost on the property.
Brookfield hasn't had its own equity in the building since 2021, a source with knowledge of the building’s financing told Bisnow. The $120M refinancing represented a full equity cash out, the source said, and when the loan matured, the owner “decided to allow the foreclosure and transfer to Starwood.”
The loan balance on the note as of last month was $142.7M, according to the foreclosure notice, up from the original loan balance of $120M. Australia’s largest pension fund, AustralianSuper, also held a 49% stake in 1200 K St. NW.
The 383K SF building was constructed in 1992 and has four levels of below-ground parking. It sits next to D.C.’s linguistic museum, Planet Word, and across the street from the Eaton DC hotel.
Sternlicht has visited the property himself, the billionaire said on the earnings call.
“We will reposition that office building as an apartment building,” he said. “It's actually quite beautiful. And we'll just take a little bit of capital, but it will come out of our book.”
The property became mostly vacant in 2022 when the General Services Administration moved the Pension Benefit Guaranty Corp., which had occupied 98% of the property, to the Portals II office building in Southwest.
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