Interesting Times

A venture of MRP Realty and Angelo, Gordon & Co. sold a 212,000-square-foot office building in Arlington, Va., to Heitman for $112.6 million. That's a 57.5 percent increase from the $71.5 million that the venture paid for the suburban Washington, D.C., property in 2009.

The sale of the Hartford Building, at 3101 Wilson Blvd., is part of a noticeable movement by investors in D.C.-area properties toward re-selling the assets they acquired during the recent bottom of the investment cycle.

Other prominent area assets that have re-sold after being acquired during the cycle bottom, which ran through 2009 into early last year, include 1211 Connecticut Ave., a 137,754-sf office building in Washington that Harbor Group International last month sold to First Potomac Realty Trust for $49.5 million. The Norfolk, Va., investment manager purchased the property for $35.2 million during the summer of 2009.

"There's a strong interest in owning in D.C. and things have changed from 2009, when there were very few people willing to buy because the focus was on preserving capital," said Stephen "Dek" Potts, senior managing director with Holliday Fenoglio Fowler, which represented Harbor in its acquisition and subsequent re-sale of 1211 Connecticut.

Re-sale examples in the multifamily sector include the 364-unit Courts at Fair Oaks complex in Fairfax, Va., that Pantzer Properties Inc. sold to Home Properties Inc. for $70.1 million in October. It acquired the complex in August 2009 for $57.5 million from another REIT, Post Properties Inc.

Recently-acquired assets that are once again on the sales market include CoStar Group's headquarters building at 1331 L St. NW in Washington. The 169,429-sf office building is expected to draw offers more than double the $41.25 million that the real estate information services firm paid in early 2010. Cassidy Turley is marketing the property, the former headquarters of the Mortgage Bankers Association, which CoStar would lease back from a new owner. The buzz is that a buyer has been selected, but the deal has not yet closed.

The MBA paid $79 million for the building in 2007, with plans on investing another $21 million to complete a build-out. But with a tanking economy that impacted its membership, it sold the property at a substantial loss.

Confidence that fully-leased buildings will not lose tenants and that partially vacant ones can be filled is apparently encouraging investors to bid more than they would have during the market's trough, when there was a weaker outlook for leasing activity.

For example, the MRP-Gordon venture sold the Hartford Building for a price that is said to reflect a capitalization rate of about 6 percent, or 2 percentage points less than the rate for its purchase of the property.

And, Harbor Group is believed to have sold 1211 Connecticut at a price expected to result in a 6.5 percent cap rate versus the 8 percent cap rate at which it bought the building. The building is fully-leased and Harbor did not significantly extend the terms of any of its leases during its ownership span.

"The D.C. market has had some strong leasing activity, which helps buyers establish what their property rents will be and the prices they can bid," explained Bill Collins, senior managing director at Cassidy Turley. "There was not such clarity in the direction of the market before."

The metropolitan D.C. office market ended last year with a 9.9 vacancy rate, the lowest metro-area rate in the nation, according to Reis Inc. That compares with a 17.6 vacancy rate for the country as a whole.

Fourth-quarter vacancy rates for Washington (5.5 percent), northern Virginia (5.0 percent) and suburban Maryland (4.9 percent) helped make the D.C. area one of the tightest apartment markets in the nation, according to Reis. Nationally, the average vacancy rate was 6.6 percent.

By John Covaleski, Commercial Real Estate Direct, 1-13-2011