Seller Finances Heitman JV’s Purchase of DC Office Building

By Barbra Murray

1401 New York Ave. in Washington, D.C.

The Class A office building at 1401 New York Ave., N.W., in Washington, D.C., has gotten its second owner in less than one year, and a $65.5 million acquisition loan helped make it happen. A joint venture of Minshall Stewart Properties and an affiliate of Heitman L.L.C. secured the financing from Lone Star Funds to acquire the 210,300-square-foot property from … Lone Star Funds.

The financing, arranged on Minshall and Heitman’s behalf by commercial real estate services firm Cassidy Turley, came in the form of a floating-rate loan from the seller.

Developed in 1983, 1401 New York stands 12 stories at a well-traveled and well-known intersection one block from the White House. So despite the fact that the building is just 40 percent occupied, Lone Star encountered a bevy of lenders eager to provide financing at what Cassidy Turley described as “aggressive pricing.”

They had their reasons. “It is on a premier corner in the Washington, D.C., central business district, the rehab will boost the rents and Class A vacancy rates are very tight,” John Campanella, executive managing director with Cassidy Turley, told Commercial Property Executive. Indeed, it’s a good time to own top-notch office space in the nation’s capital. The total vacancy rate for Class A properties in Washington, D.C., in the fourth quarter of 2013 was 10.2 percent, per a Cassidy Turley report, and the average rental rate was $53.23 per square foot.

In light of the market, Lone Star’s flip of the property was a good one. The leading private equity firm, which invests globally in distressed assets, acquired it in March 2013 for approximately $71.8 million. The Minshall-Heitman joint venture purchased it for $88 million. And Lone Star, which now holds the loan, will continue its affiliation with the office destination, as the Dallas-based company maintains its local offices in the tower.

Image courtesy of Yardi Matrix