May 1, 2008
Investors buy 2 K Street buildings
Source: Washington Business Journal
Two K Street office buildings traded hands this week, marking the potential departure of two more Class B office buildings and the influx of additional foreign capital into the nation's capital.
Sumitomo paid $76 million in cash for the 152,740-square-foot office building, which is home to law firm Wiley Rein and five other tenants. The building is fully leased.
"This is Sumitomo's first D.C. acquisition in a long time," said James Meisel, a senior managing director at Holliday Fenoglio Fowler, the D.C. firm that brokered the deal.
After this sale, Bernstein will hold just three commercial sites in D.C.: 1990 K St. NW;five buildings at Judiciary Square at 3rd and G streets NW; and The Papermill at 3299 K St. NW. The company also owns at least six sites in suburban Maryland and Northern Virginia.
None of those properties are currently on the market, Meisel said.
Two blocks down the street, Detroit-based MayfieldGentry Realty Advisors LLC picked up 1522 K St. NW from D.C.-based Intrepid Real Estate on April 21.
The 81,094-square-foot building sold for about $30 million, according to real estate sources.
That building is 89 percent leased to tenants including Atelier Architects, the National Sleep Foundation and R.E. Bushnell & Law Firm.
MayfieldGentry is a new entrant to the Washington real estate market, said Eric Berkman, senior vice president at Grubb & Ellis, which represented the seller. "It demonstrates yet again the attractiveness of Washington real estate to outside investors," Berkman said.
Despite their Class B aesthetics, both buildings are in Class A locations -- in the heart of the lobbying corridor and just blocks from the White House. Their new owners are evaluating whether to remodel their buildings to push them into the Class A price range.
1522 K St. NW is almost certain to move into the Class A market. "We plan to capitalize on its excellent location by upgrading key systems within the building and making the cosmetic improvements necessary to restore this asset to Class A status among small and mid-size tenants in the DC market," said Chauncey Mayfield, MayfieldGentry's chief executive officer.
The future of 1750 K St. NW is less certain. "I think they're going to keep it as is for awhile and then decide what to do with it," Meisel said.
Class A office buildings in D.C. have become a commodity in the past year, with 9.2 million square feet of Class A office space under construction in the city and more on the way, according to Jones Lang LaSalle's first-quarter survey of the office market.
The glut has flattened rent growth and encouraged concessions in the Class A market, while the demand for the top-quality trophy buildings -- and lower quality Class B and C buildings -- has pushed rents in those buildings up slightly.