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Pension Fund Sells 200K SF Rockville Office Building For $14M

D.C.-based investor Singh Capital Partners has closed on an all-cash purchase of a 1980s-era office building in Rockville that is 65% occupied. 

1801 Rockville Pike, a 199K SF office property built in 1985.

The firm purchased the 199K SF property at 1801 Rockville Pike for $14.25M, Singh Capital Partners Chief Investment Officer Manpreet Singh told Bisnow.

The property was sold by Massachusetts pension fund MassPRIM, which purchased it for $37.2M in 2004.

For SCP, a family investment office that invests in venture capital, private equity and real estate, the deal is part of its strategy to buy properties at high cap rates.

“We don't want to pay top dollar. We’re looking for deals and discounts,” Singh said in an interview Tuesday. 

MassPRIM's $101B Pension Reserves Investment Trust fund has about 11% of its investments in real estate, according to its website. Mass PRIM declined to comment on the sale.

SCP partnered with Bethesda-based brokerage and investment firm KPI Commercial on the deal, and it raised equity from a variety of family offices. It didn't use a loan for the purchase. 

Founded in 2018, SCP, which doesn't publicly disclose its assets, owns flex, retail, industrial, office and multifamily. Singh said the company owns millions of square feet in the mid-Atlantic.

The property sits on a busy retail stretch about 7 miles north of the D.C. border. Singh said the firm was especially attracted to its proximity to Pike & Rose, and sees demand from the office market to be close to that development without having to pay elevated expensive rent in those areas.  

“This is an iconic location,” Singh said. "I think everyone kind of knows this area and this location, especially in this market.” 

In a letter seeking investors that Bisnow obtained, SCP said it has a $7.5M tenant improvement budget, and it “conservatively expects” the property will reach 80% occupancy by 2029. 

Singh said SCP is in talks with five tenants looking to take a combined 100K SF. He said the property is seeing “tremendous” demand from medical tenants as well as home services companies. 

“We are very open for business in this office,” Singh said. “I think a lot of landlords and owners of these type of buildings today don’t want to put a lot of money into [tenant improvements] because they’ve already sunk a lot of costs and expenses into it. We’re open to spending the right amount of TI to get the right tenants in here for a very long time period.” 

The building’s tenants have a weighted average lease term of 4.2 years, according to the investor letter. They include iHeartMedia, WesBanco and the Montgomery County Economic Development Corp.

The office property was valued at $27.5M as of the beginning of the year.  

Office values have been plummeting for the past four years since the beginning of the pandemic, especially for older, Class-B and C office properties like 1801 Rockville Pike. At the beginning of the year, a 335K SF office building at 7500 Old Georgetown Road in Bethesda sold for 22% of its 2019 price.

Suburban Maryland had a 20.5% vacancy rate as of Q1, per CBRE, with 232K SF of negative net absorption. Rockville was at 23.4% vacancy and lost 60K SF of net tenancy.