Seller Finances Heitman JV’s Purchase of D.C. Office Building

A joint venture of Minshall Stewart Properties and an affiliate of Heitman L.L.C. secured the financing from Lone Star Funds to acquire 1401 New York Ave., N.W., in Washington, D.C.
Photo courtesy of CoStar Group Inc.

Photo courtesy: CoStar Group Inc.

By Barbra Murray, Contributing Editor

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.