Preferred Apartment Sells Office Portfolio for $718M

Preferred Apartment Communities is selling a portfolio of seven office properties and one office real estate loan investment to Highwoods Properties for $717.5 million, including the assumption of debt.

Joel T. Murphy, Preferred Apartment Communities’ president and CEO, says the sale continues a simplification strategy that began when the company sold its student housing portfolio in 2020. Once the Highwoods deal closes in Q3 2021, PAC’s portfolio will be further focused on Class A suburban Sunbelt multifamily business and its 100% grocery-anchored Sunbelt retail investments.

The portfolio includes 150 Fayetteville, a 560,000 square foot office tower located in Raleigh, NC; Capitol Towers, a 479,000 square foot two-building office tower complex located in Charlotte, NC; CAPTRUST Tower, a 300,000 square foot office tower located in Raleigh; Morrocroft Centre, a 291,000 square foot three-building office complex located in Charlotte; Encore Center, a 111,000 square foot office complex located in Atlanta; 8 West (a real estate loan investment), a 195,000 square foot office property located in Atlanta; Armour Yards, a 187,000 square foot creative office complex in Atlanta; and 251 Armour, a 36,000 square foot creative office complex also in Atlanta. JLL marketed the sale.

The buildings in Charlotte and Raleigh, which encompass 1,630,000 square feet, were 95% leased on December 31, 2020, with rent collections of more than 99% during 2020.

Highwoods will primarily fund the acquisition by accelerating the sales of existing non-core assets.

PAC is separately marketing Armour Yards and 251 Armour for sale to a third party as part of the transaction. 

PAC intends to use the cash proceeds from the sale to realign its balance sheet through calls or redemptions of its Series A preferred shares, to continue growing its core suburban Sunbelt Class A multifamily through acquisitions and real estate loan investments and for other corporate purposes, according to the news release. PAC intends to exit the office asset class.

“We will remain focused on maximizing the value of our few remaining office assets through prudent asset management and then effect a complete exit from the office sector through a controlled and well-navigated disposition process over time,” Murphy said in a prepared statement.

For Highwoods, the acquisition offers a chance to move into two new business districts that have long been on its watchlist. It also doubles Highwoods’ presence in Charlotte to 1.6 million square feet and further strengthens its market share in Raleigh, according to President and CEO Ted Klinck.

The transaction shows the value of real estate in the Sunbelt. In a recent interview, Allen Aldridge, senior vice president and co-director of asset management at KBS, told GlobeSt.com that the Southeastern office market is returning to life.

“While every region of the country has been impacted by COVID-19, the Southeast has shown increasing resilience,” Aldridge told GlobeSt.com. “At the start of the pandemic, there was a lengthy pause in deal volume as lenders and investors assessed COVID’s impact on the commercial real estate landscape.”