D.C.'s Slow Year For Sales Ends With Flurry Of Closings Totaling $750M
The final days of any year typically feature a wave of deals closing in the commercial real estate investment sales market, and 2020 was no exception.
While the investment sales market was slow throughout 2020 because of the coronavirus pandemic, a string of major D.C.-area deals closed in the final weeks of December. Bisnow found deed records for 10 sales, each more than $30M, that closed between Dec. 16 and Dec. 31 for a combined $743M.
The majority of the deals are office properties, but they also include the sales of an industrial distribution facility, a shopping center, an apartment community and a hotel. They span from Reston to Downtown D.C. to Upper Marlboro.
The D.C. region recorded $4.4B of office investment sales in 2020, down from $8.5B during the prior year, according to Newmark's Q4 office market report. Newmark Executive Managing Director James Cassidy said the flurry of deals at year-end didn't make up for the overall sluggishness of the market throughout the year.
"It looks like a huge surge of activity because there's been so little before it," Cassidy said. "Things had been slow since March, and things had worked their way along and had been agreed to, or under contract for a long time, and ended up getting done by year-end. It's a timeline people can aim at, and also you have the lending community that wants to close loans by year-end."
The region recorded $7.3B of multifamily investment sales in 2020, compared to $10.9B the prior year, according to CBRE.
CBRE Executive Vice President Mike Muldowney said he thinks the looming change in administration may have played a role in some parties wanting to close deals before year-end. He said this was especially the case for investors using the 1031 exchange program, as President-elect Joe Biden called for eliminating the program.
"You saw some activity on the 1031 front where people were saying, 'Let's go ahead and close this year because who knows what the Democrats are going to bring next year,''' Muldowney said. "We live in a risk-averse world in multifamily, and those who see the 1031 program going away, they say, 'Well, let's just get this deal done and we don't have to worry about it.'"
Muldowney's team brokered the sale of the Lincoln at Wiehle Station apartment community in Reston from Lincoln Property Co. to Snell Properties. The 720-unit property sold on Dec. 23 for $100.5M, property records show.
Also on Dec. 23, Monument Realty acquired the office building at 1129 20th St. NW from an affiliate of industrial REIT Prologis for $84.8M, deed records show. Monument Realty obtained a $58.7M loan from a subsidiary of TIAA, deed records show.
The building, constructed in 1968, last sold for $61.8M in 2007, property records show. The building underwent a renovation in 2008 that added 45K SF, bringing the building to 180K SF.
The deal capped a busy year for Monument, which also sold a Springfield property in November, broke ground on a NoMa development in October, sold a new Shaw apartment building in August, sold an Adams Morgan retail property in March and bought another Downtown D.C. office building in February.
On Dec. 29, Paramount Group announced it sold the office building at 1899 Pennsylvania Ave. NW for $103M, though deed records show it sold for $92.2M. The deal represented Paramount's exit from the D.C. market.
Paramount didn't announce the buyer, and deed records list it as an affiliate of Global Securitization Services, a New York-based firm that establishes special purpose entities for investor clients. The buyer obtained a $55M loan from New York-based NYL Real Estate Investors, deed records show.
Newmark and Eastdil Secured brokered the sale. Cassidy said the deal had been in works for most of the year, and Paramount had targeted closing by year-end, a strategy he said is typical for publicly traded REITs.
Albertsons Cos., the parent company of grocery chain Safeway, sold the distribution center at 16020 Leeland Road in Upper Marlboro to Target Corp. for $95M, according to a deed posted Dec. 17 in Prince George's County records.
The sale comes after Albertsons announced in January 2020 it planned to close the distribution center in August, eliminating 520 jobs and shifting to supply its D.C.-area stores from a Pennsylvania distribution center.
A Target spokesperson confirmed the acquisition to Bisnow and said the company plans to open a supply chain facility to support its growth.
WashREIT announced Dec. 17 it sold two office properties, 1227 25th St. NW in Downtown D.C. and Monument II in Herndon, for a combined $106.5M.
The REIT sold the 137K SF office building at 1227 25th St. NW for $53.5M, deed records show. It didn't disclose the buyer, and deed records list it as an entity registered to law firm Shearman & Sterling.
“These sales further strengthen our balance sheet ahead of the post-vaccine recovery and align with our strategy to reduce our exposure to office assets, allowing us to de-risk our portfolio and improve our ability to create long-term shareholder value,” WashREIT CEO Paul McDermott said in a release.
On Dec. 18, Fairchild Properties sold the Fairchild Building at 499 South Capitol St. SW to an affiliate of Boyd Watterson Asset Management for $85.9M, deed records show.
The 188K SF office building, five blocks south of the U.S. Capitol, was built in 1978 by the Fairchild family. It owned it for more than four decades, but Fairchild Properties President Charlie Fairchild said last month was a good time to sell.
Fairchild said the building is 100% leased, with government tenants comprising 72% of the space, making it a stable asset that is appealing to investors in today's market. He also said he wanted to close the sale before year-end because of a new D.C. tax hike that went into effect.
The D.C. Council, as part of its budget bill last year, eliminated a franchise tax exemption on unincorporated businesses that real estate investors used to avoid the 8.25% tax rate when they liquidate an asset. As of Jan. 1, investors are no longer able to avoid that tax when selling properties, a deadline that led Fairchild to seek a sale before year-end.
"For us, COVID actually benefited us because we have government tenants, so we were probably the most sound building in D.C.," Fairchild said. "The other reason that drove it was the franchise tax ... You've got a change of administration, capital gains is gonna go up, and D.C. imposes a huge tax, so it was time."
On Dec. 23, Varsity Investment Group acquired the Georgetown Suites hotel for $33.5M, with plans to convert it to apartments, the Washington Business Journal reported.
While 2020 was a down year for D.C.-area investment sales, Cassidy said he expects the market will pick up this year.
"We do see a snapback on the horizon because there's a record amount of equity in our space to be invested," Cassidy said. "You combine that with the need for banks to put out loans, so there will be a significant appetite for real estate, and D.C. has always performed well in a post-recession environment."