That is why this trade is taking on a sort of symbolic importance to nervous building owners and worried brokers: not only did a trophy building sell at a good price in a relatively short period of time--four months--but at $867 per sf, it was the highest recorded price in the market. According to John Kevill, managing director at Jones Lang LaSalle, the nearest trade was $825 per sf, registered a few years ago, when 1801 Pennsylvania Ave. was sold.
Kevill, along with Collin Ege, represented the seller, Germany-based Wealth Management Capital Holding GmbH in the transaction. The building was originally developed by a JV between Kaempfer and Real Estate Capital Partners in 2001. That year it was sold to Wealth Management. Debra and Benjamin Lacy of Lacy Ltd. advised Wealth Capital in this transaction as well as its purchase of the building seven years ago.
According Kevill, the seller is basing the per sf sales price on a building measurement that comes out to 199,000-sf. The buyer, according to its announcement two days ago, is using a 206,000-sf measurement, which translates into a lower price per sf. Either way, though, it is still the highest price paid in the market.
The ongoing demand for DC trophy space, a weak dollar and high foreign interest in DC real estate all account for the building's price, Kevill tells GlobeSt.com. Jones Lang LaSalle did not go to market with an asking price; rather it used the leverage generated by the auction process to develop the price that the buyer ultimately paid. "We had interest from literally around the world," Kevill says. "The real story is not that Vico Capital paid what it did; it is the fact that there was a group of buyers willing to pay the same thing."
Kevill says he and his colleagues went on marketing tours in Europe, the Middle East, Asia Pacific and Latin America. It came down to two buyers: Vico and a high-net worth individual in the Middle East. The cap rate paid for the building was in the sub 5% range, according to Kevill--a rate that is equivalent to those of a year ago.
The main attractant for Vico was the expected cash returns it will receive as rents in the building turn over. The property is currently fully leased to three tenants: Holland and Knight; Perseus, a merchant bank and private equity fund management company; and Danaher Corp. "The buyer is focused on current income and future income," Kevill says. If space were to become available in the building, asking rates would be in the mid $50s, triple net, he predicts.
Kevill explains that trophy buildings like 2099 Pennsylvania' come to market once every few years. Meanwhile, though, the demand to lease such space in the city continues to grow. "There is a tenant class in DC that has to be in the best possible space—government affairs offices for foreign countries, global law firms etc."
Another factor behind the trade is the weak dollar, which makes such investments more attractive to foreign buyers. "This was probably the first transaction I have been involved in where the buyer took some comfort in the relative weakness of the dollar—that also impacted the underwriting to a degree," Kevill says.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
