A DC Office Sale is a Sign of the Times
The sales history of this commercial office building is really the epitome of what has taken place during the past few years in the commercial real estate market, and the story behind the recent transactions are filled with such irony, that I had to write about it.
Back in 2008 the Mortgage Bankers Association (MBA) decided to purchase a building under construction at 1331 L Street NW in Washington DC for $79 Million, five blocks from the capital (makes sense because their political action committee, the Mortgage Bankers Association Political Action Committee or MORPAC could be close to congress to lobby congress on behalf of their business). Holliday Fenoglio Fowler LP, a real estate advisory firm, announced in June 2008 that it had arranged the $75 million financing for the MBA at the height of the commercial real estate market MBA took out a $75 Million mortgage on the building from PNC.
Guess what happened next? The property market crashed. The value of the MBA’s shiny new office building plunged in value. In February of 2009, at the bottom of the market, the MBA sold the building for $41.3 Million, and essentially walk away from the balance they owed.
Now it’s time for the hypocrisy – John Courson, the CEO of the trade group, when asked in a prior interview about home-buyers intentionally walking away from their mortgages, said “What about the message they will send to their family and their kids and their friends?” On top of that, giant commercial landlord Tishman Speyer is locked in a court battle with the MBA, contending the trade group still owes $1 million after breaking an earlier lease to move into its former, massively overpriced headquarters.
However, the winners of this deal are also connected to the real estate industry – the buyer was the CoStar Group Inc., the largest provider of Commercial Real Estate Data in the U.S. (we use them in my office) – as mention, they paid $41.3 Million. But now, the commercial property market is rebounding (in my office we’re seeing strong demand from institutional buyers for high-quality, class-A, well-leased offices). So now CoStar is reselling the property, just a year later for $101 Million to German property-fund Manager GLL Real Estate Partners, who CEO Jochen Schnier is taking advantage of low interest rate. CoStar will stay as a tenant in the building. CoStar doubles its money, and GLL gets a high-quality, long-term investment.
This post will also appear on my company’s blog, Commercial Grade
