Bisnow/Jon Banister

WashREIT’s office building at 1775 Eye St. NW

The picture of how much commodity office buildings in D.C. are selling for post-pandemic is getting clearer now that the prices Brookfield Asset Management paid for a chunk of WashREIT’s office portfolio have become public.

The D.C.-based REIT announced last week it closed on the 12-building, $766M portfolio sale, which was the culmination of a major restructuring effort, and documents were posted Tuesday in the D.C. Recorder of Deeds showing the individual sale prices for five D.C. office buildings. 

• The office building at 1775 Eye St. NW sold for $80.5M, deed records show. The building, constructed in 1964, is 87% occupied and totals 188K SF, according to WashREIT’s Q2 earnings supplement, meaning the sale came out to $428/SF. 
• The Army-Navy Building at 1627 Eye St. NW sold for $64M, deed records show. According to WashREIT’s Q2 earnings, the building was 97% leased and totals 108K SF, putting the deal at $593/SF. 
• The 1901 Pennsylvania Ave. NW office building sold for $40.3M, deed records show. It was 81% leased as of Q2 and totals 101K SF, putting the deal at $399/SF. 
• The 1140 Connecticut Ave. NW office building sold for $38.8M, deed records show. It was 82% leased as of Q2 and totals 184K SF, putting the sale at $211/SF. 
• The building at 1220 19th St. NW sold for $24.25M, deed records show. Built in 1976, it was 85% occupied as of Q2 and totaled 103K SF, putting the deal at $235/SF. 

The sixth D.C. building sale it announced it was selling to Brookfield, 2000 M St. NW, appears to be owned under a ground-lease structure and the latest sale wasn’t recorded Tuesday. The six other office buildings in the 12-property portfolio were in Northern Virginia, with three in Arlington, two in Alexandria and one in Tysons. 

WashREIT still owns one office building, 600 Watergate, which it said in June it plans to sell separately “when practicable.” WashREIT CEO Paul McDermott said on the firm’s Q2 earnings call last week it expects to hold onto the property at least for the rest of this year, calling it the “best office asset that we had owned,” according to a Motley Fool transcript. 

The REIT also said in June it had signed a letter of intent to sell its eight remaining retail assets, as it shifts to becoming a multifamily-only REIT. WashREIT also said it plans to expand its multifamily portfolio to new Southeast markets including Atlanta, Charlotte and Raleigh-Durham, and it plans to focus on middle-income renters. 

On the earnings call, McDermott said WashREIT sees strong growth drivers in the multifamily sector, a stark contrast to what it was seeing in the office market. 

“In office, we were facing challenging and increasing headwinds, including increase in capital requirements, and we expect those headwinds to continue,” McDermott said. “This contrast in growth prospects boosts our confidence that will create more values for our investors going forward through our portfolio recalibration.”

The company said in June that it aims to transfer the majority of its office personnel to Brookfield, and on the earnings call McDermott said he is grateful to the departing staff and will miss them. 

“I’ll be blunt, it’s been an emotional week here, saying goodbye to colleagues that we’ve had the privilege to work with as we work up to this transformation,” McDermott said, according to the transcript. “But what that has left us with is an outstanding multifamily team to build a platform off of.” 

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

Bisnow/Jon Banister

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.