Griffin Realty's $1.1B Office Deal Gives Sector Much-Needed Boost

Two different stories this week meet together for some good news on the office front.

Griffin Realty Trust sold a majority interest in a 41-property, 53-building office portfolio at a $1.13 billion valuation, according to a company press release. No mention of the buyers or of what exact percentage is being sold.

However, the “portfolio includes properties with shorter weighted average lease terms and higher estimated future capital expenses in relation to the balance of GRT’s portfolio.” That would leave GRT, in addition to that minority interest, with 57 office buildings, as well as 23 industrial that are primarily net-leased to creditworthy single tenants.

According to GRT, the move reduces debt on the balance sheet and “de-risks our portfolio in consideration of current capital market conditions and the continued pressure that pandemic-related work-from-home trends are exerting on leasing demand and property valuations in the office sector.”

Simultaneously came the news, reported by the Wall Street Journal, that Singapore’s GIC Pte. Ltd., one of the world’s largest sovereign wealth funds, in conjunction with Workspace Property Trust, was buying a majority stake in, oddly enough, a 41-property, 53-building office portfolio whose majority interest was being sold by GRT.

It looks as though Workplace Property Trust will operate the properties, almost doubling its operational portfolio to about 18 million square feet, with many of the new buildings “clustered around Atlanta, Dallas and the San Francisco Bay Area.”

Apparently, that means suburbs, with Workspace and its backer in GIC betting there’s an accelerating move to suburban offices.

CBRE published research in June that in “most markets, downtown office buildings remain impacted by the slow return of residents and office workers who fled during the height of the pandemic,” with suburban offices now seeing faster rent growth. “The suburban vacancy rate of 16.9% is 20 bps lower than its pandemic-era high, while the downtown vacancy rate of 16.8% is the highest in the past 20 years,” the firm said then

That’s a reversal of the usual relationship, in which downtown offices typically see higher rent growth. But there’s another aspect to this deal spelled out by the choices of Atlanta, Dallas, and San Francisco. This is the Sun Belt and West pattern that have also been frequently observed and which should be no surprise at this point.

It’s also not the only good news for office. Two Trees Management got $80 million in financing from M&T bank to finish redevelopment of the Domino Sugar Refinery in Brooklyn and turn it into a 460,000 square foot office campus.

Then again, because CRE is never a simple industry, remember that healthcare provider Centene just cancelled its plan for a 1 million square foot campus in Charlotte, North Carolina.