DC’s Warner Center Commands $377M

JBG Smith sold the historic Pennsylvania Avenue property. The 583,453-square-foot Class A office asset was 98 percent leased at the time of the sale.
1299 Pennsylvania Ave.
1299 Pennsylvania Ave.

JBG Smith continues its selling spree with its latest D.C.-area disposition—The Warner Building, a 583,453-square-foot, Class A office building at 1299 Pennsylvania Ave. NW. The firm, the largest developer and pure-play Washington, D.C., real estate company, sold the building to CBRE Global Investors for $376.5 million.

Collins Ege, Nicholas Pappas and Sean McDermott of Eastdil Secured represented JBG Smith in the transaction.

The 13-story building, which includes the historic Warner Theatre on the ground floor, was part of Vornado Realty Trust’s D.C.-area holdings prior to July 2017, when JBG Smith was created through a spin-off and merger. The combined company now has an operating portfolio of about 19 million square feet and a development pipeline with roughly 18.3 million square feet.

“With the sale of The Warner Building we have closed over $760 million of asset sales and recapitalization, the proceeds of which will be used to deleverage our balance sheet and create capacity for future investment opportunities,” Matt Kelly, JBG Smith CEO, said in a prepared statement. “We plan to continue to capitalize on the current environment to raise attractively priced capital.”

In November, a joint venture between JBG Smith and WealthCap sold a two-building, 229,905-square-foot office and lab portfolio in Rockville, Md., occupied by the National Institutes of Health. A month earlier, JBG Smith sold the Lion Building a 157,000-square-foot office building in Washington, D.C., for $65 million. In September, the firm sold Executive Tower, a 130,000-square-foot office building in D.C., for $121 million.

JBG Smith was among the big winners in November when Amazon announced it would be locating one of its new HQ2 locations at Crystal City in Arlington, Va., where the REIT is the submarket’s biggest owner. JBG Smith will be providing 500,000 square feet of space at three existing properties to Amazon and 4.1 million in new development.

‘Strategic’ acquisition

Robert Perry, head of CBRE Global Investors’ Strategic Partners U.S. Value 8 fund, said the value-add fund acquired 100 percent ownership of the Warner Building. JBG Smith had a 55 percent ownership interest in the building, which is about 98 percent leased. The remainder was owned in partnership with a Canadian pension fund.

“We focus on high-quality assets in prime locations and of, course, this fits both of those characteristics,” Perry told Commercial Property Executive.

The theater, then known as The Earle, opened in 1924. The office portion was added in 1993 and the property was renovated in 2012. Highlights of the renovation included a dramatic new atrium lobby, fitness center and Sky Terrace roof lounge with dramatic views. Located between the White House and Capitol on Pennsylvania Avenue, the property is one block from the Red, Blue and Orange Metro lines.

Tenants include SB & Co., APCO, DHA Group, Cooley and Baker Botts, an international law firm that is planning to leave The Warner Building in March 2020 for 103,300 square feet at The Meridian Group’s Anthem Row project, also in the city’s East End submarket.

“We think it gives us the best of both worlds,” Perry said about the landmark building. “It’s got a base of stable tenancy and income through the lower reach of the building and the ability to make a very dramatic repositioning of some of the space.”

Perry said Baker Botts’ space is “substantially less than half the building” and located on the upper floors, including direct access to the roof deck. “We think we can convert that space into some of the coolest, most exciting repositioned space in the District,” he told CPE.

Planned capital improvements will include opening up the lobbies and common corridors, adding lots of glass and upgrading elevators. The firm will also offer concierge-level service and has brought on affiliate CBRE as the property and leasing manager, Perry said. 

CBRE Global Investors closed the Strategic Partners U.S. Value 8 fund in November 2017 at $1.34 billion but had begun investing from it in 2016, Perry said. Including leverage, the fund has the ability to invest about $3.3 billion. He said the firm invests across the main four sectors—office, multifamily, retail and industrial.

Perry noted the fund was most active at the end of the year and beginning of January 2018—when it acquired its first D.C.-area property, North Bethesda Market, a mixed-use property in North Bethesda, Md. The asset was a Class A property with about 183,000 square feet of retail, 411 apartments and more than 1,200 parking spaces within walking distance of the White Flint Metro station.

Image courtesy of CBRE Global Investors