Brookfield Sells Downtown D.C. Office Building For $163M

Brookfield Properties has sold another D.C. office asset, parting ways with a property it transformed a decade ago from a Class-B brick building into a glass trophy.

Stream Realty Capital acquired 2001 M St. NW from Brookfield and DWS Asset Management for $163.3M, two sources involved in the deal tell Bisnow. 

Brookfield had owned a 49% interest in the building, with the remaining 51% owned by DWS, the sources said. The subsidiary of Dallas-based commercial real estate brokerage Stream Realty acquired 100% of the interest in the building, the sources said.

A Brookfield spokesperson confirmed it sold the property but declined to comment on the price.

"The successful sale follows a strong spate of leasing and aligns with Brookfield’s strategy to recycle capital strategically," the spokesperson said. 

The building spans 285K SF, putting the sale price at $572 per SF, well above many of the region's post-pandemic office transactions that have fallen below $100 per SF in some cases. 

Still, the $163M price appears to be a significant discount to the building's value before the pandemic. Deed records show two partial interest sales in 2019, one for 49% to a Brookfield entity and one for 51% to a separate entity. The prices on those transactions add up to $237M.

The acquisition was made by Stream Realty's investment arm, while the firm's D.C. team that focuses on third-party leasing and property management advised it on the deal. Brookfield retained Stream Realty to lease the building two years ago.

Stream Realty Executive Managing Director Kyle Luby, who leads the D.C. office, told Bisnow its assignment convinced the firm that 2001 M was an attractive purchase opportunity. 

Rather than the distressed office assets that many opportunistic investors are targeting, Luby said the building is financially stable with 95% occupancy. 

Brookfield completed a full-scale repositioning of the building in 2016, installing a glass facade and adding two floors of offices plus a rooftop deck.

After completing the project, it landed three law firms: Weil Gotshal & Manges LLP for 65K SF, Wilkinson Walsh + Eskovitz for 32,500 SF and Bracewell, which renewed its 53K SF lease toward the end of last year.

Luby sees the building as straddling the line between the red-hot trophy segment of the market and the tier below that is beginning to capture spillover demand. The newer top floors can achieve trophy-level rents, Luby said, while the lower floors are a more affordable option.

"The trophy market’s gotten extremely tight downtown," he said. "New supply is limited, putting upward pressure on rents and downward pressure on concessions. Now we’re seeing in real time that’s starting to spill into the double-A class just below trophy."

He said Stream Realty plans to invest $6M to upgrade the building to respond to how tenant preferences have changed over the last decade. It plans to triple the size of the interior rooftop space to include a 100-person conference facility, renovate the fitness center and locker rooms, and expand the golf simulator that Brookfield added in 2016. 

While the building is already mostly full, Luby said it is worth making the investment for four reasons.

"One, to retain tenants," he said. "Two, to achieve rent growth. Three, to catch up to the market. And four, I think it's really important when we go to exit the investment — I don't know when that would be — but any future owner beyond Stream wants to see a building that has amenities that meet the market."

For Brookfield, the deal continues its pattern of offloading office assets over the last few years in the D.C. area and beyond. Many of these assets have sold for substantial losses or have been taken over by lenders and sold at auction. 

At the same time, Brookfield has deployed billions of dollars into other sectors. Earlier this week, it announced it reached a $1.2B deal to buy Peakstone Realty Trust, an industrial outdoor storage REIT. And it has made massive investments in data center firms and related power generation companies.