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WashREIT Selling Office, Retail Holdings For Nearly $1B To Focus On Apartments

WashREIT is transitioning into a multifamily-only REIT with massive deals to sell its office and retail portfolios. 

WashREIT CEO Paul McDermott and Boston Properties' Senior Executive Vice President Ray Ritchey at Bisnow's 2018 D.C. State of the Market

The D.C.-based REIT announced Tuesday it reached a $766M deal to sell a 12-asset office portfolio to a Brookfield Asset Management private real estate fund. 

It also announced it signed a letter of intent to sell its eight remaining retail assets to an undisclosed buyer for around $170M. It expects the sales to close in Q3. 

The company plans to use the proceeds of the sales to repay debt and to expand its multifamily portfolio to the Atlanta, Raleigh-Durham and Charlotte markets. It has made several D.C.-area apartment acquisitions over the past six years, and it signaled in 2019 that it planned to make a major portfolio shift after selling a series of retail properties. 

"We are announcing the most significant milestone to date in our transformation into a multifamily REIT," WashREIT CEO Paul McDermott said in a release. "This transaction, along with sourcing multifamily expansion opportunities and our retail sales process, signals our belief that the multifamily asset class is the best vehicle to harness long-term growth for our investors." 

The 12-asset office portfolio totaling 2.7M SF was 83% occupied as of May 31, the REIT said.

The portfolio includes six properties in the District: 1775 Eye St. NW, 1140 Connecticut Ave. NW, 1220 19th St. NW, 1901 Pennsylvania Ave. NW, 2000 M St. NW and the Army Navy Building. The portfolio also includes six Northern Virginia buildings: 515 King St. and Courthouse Square in Alexandria, Silverline Center in Tysons and 1600 Wilson Blvd., Fairgate at Ballston and Arlington Tower in Arlington. 

The Watergate 600 office building, part of the famed Watergate Complex

The REIT left one office asset out of the portfolio: Watergate 600. But it said it plans to sell it "when practicable." It acquired the 300K SF office building at 600 New Hampshire Ave. NW in 2017 for $135M and then completed a significant renovation effort. 

JLL is representing WashREIT in the office and retail portfolio sales, and Goldman Sachs & Co. is serving as its financial adviser. 

WashREIT's existing multifamily portfolio includes 21 fully stabilized assets across the D.C. area and the 401-unit Trove building in Arlington, which delivered last year and is now over 60% occupied. The 7,100-unit multifamily portfolio was 95.4% leased, excluding the Trove building, as of May 31. 

The company plans to deploy around $450M to expand its multifamily portfolio over the rest of this year. It said it plans to focus on properties between the Class-A-minus and Class-B segments with middle-income renters. 

"With this transaction, we have the resources to expand the scope of our successful research-led, value-creation strategies into high-growth Southeastern markets that we have studied for the past several years," McDermott said. "These strategies include serving the underserved mid-market renter and delivering the best resident experience across several price points, thereby creating the greatest value for all of our stakeholders."

McDermott, in emailed responses to Bisnow questions, said fully shifting to multifamily provides a simplified story for its investors and concentrates its holdings in a more high-growth sector than office.

“We believe multifamily assets will continue to increase in value as they have most of the past 25 years and we believe the office market will face increasing and continued headwinds going forward," McDermott said.

WashREIT is working with Brookfield to transfer "the majority" of its office personnel to Brookfield, McDermott said, adding that it plans to expand its multifamily team as it grows that business.

UPDATE, JUNE 15, 1:30 P.M. ET: This story has been updated with additional comments from WashREIT CEO Paul McDermott.