Paramount Closes $460M DC Office Sale

The 24-story Waterview tower in Arlington, Va., sold for $711 per square foot, a record-breaking price for suburban Washington.
Waterview
Waterview in Arlington, Va.

One decade after acquiring the premier Waterview office tower in Arlington, Va., just outside Washington, D.C., Paramount Group has traded the 647,000-square-foot property in a head-turning transaction first announced in February. The company sold Waterview to Morgan Stanley Real Estate for $460 million, or roughly $711 per square foot—a deal that, according to a report by commercial real estate services firm NAI KLNB, “breaks the record for a suburban Washington office building sale [in] price per square foot.”

Paramount had owned Waterview, sited at 1919 N. Lynne St. in Arlington’s Rosslyn submarket, since 2007, when it acquired the then brand-new property for approximately $413 million from its developers, JBG Cos., Brookfield Properties Corp. and CIM Group. The 24-story tower, which includes 5,500 square feet of retail space, is 99 percent leased to CEB Inc., as it has been from day one. CEB (formerly The Corporate Executive Board Co.) pre-leased the building in 2004 in what was then the largest private sector office lease transaction ever completed in the metro Washington, D.C., market. The tenant has a claim on the space through 2027.

Albert Behler, president & CEO of Paramount, put the Waterview sale in perspective during the company’s fourth quarter 2016 earnings conference call on February 23, 2017. “When you think about the value of this asset in comparison to what analysts have modeled in their NAV estimates, and taking it a step further to what our stock is trading at, the disconnect is tremendous,” Behler said. “Let me clarify. The average consensus NAV estimate for Paramount is about $20 per share, and in that consensus, Waterview is valued on average at about $445 million. At year end, our stock was trading at a 20 percent discount to consensus NAV. So, the implied value of this asset based on our stock price was $356 million, or a staggering 29 percent below the price we were able to achieve.”

Paramount walked away from Waterview with net proceeds of approximately $457 million, $200 million of which the office REIT utilized to repay the outstanding balance under its revolving credit facility. An additional sum of nearly $87.2 million went toward paying off the loan on 1899 Pennsylvania Ave., a 192,500-square-foot property in Washington, D.C., and another $84 million was used to repay the loan on the 174,200-square-foot Liberty Place, also located in the District. Not bad for a 10-year hold.