Vornado Closes First Phase of $127M Sale of Two DC Office Assets

While the firm has wrapped up the sale of the 186,000-square-foot office building at 1140 Connecticut Ave., N.W., it is not quite finished doing business with buyer Washington Real Estate Investment Trust.

January 13, 2011
By Barbra Murray, Contributing Editor

Vornado Realty Trust has wrapped up the sale of the 186,000-square-foot office building at 1140 Connecticut Ave., N.W., in Washington, D.C., to Washington Real Estate Investment Trust but the two REITs are not quite finished doing business just yet, as Vornado also signed a contract to sell the 135,000 square-foot property at 1227 25th St. to WRIT. Together, the buildings carry a price tag of $127 million.

Developed in 1966, 1140 Connecticut is located in Washington, D.C.’s central business district and fetched just over $80 million. The 12-story tower, which also features ground-level retail space, is 99 percent occupied with a 25-name tenant roster that includes the Elizabeth Glaser Pediatric AIDS Foundation and Oak Ridge Associated Universities. Less than one mile away in the West End submarket is the eight-story property at 1227 25th that Vornado has contracted to sell to WRIT for $47 million. The 23-year-old building also has a two-level parking facility and is 72 percent leased to a list of tenants that includes law firm Epstein Becker & Green, P.C., which occupies 38 percent of the office space and the U.S. General Services Administration. The sale is on track to close within the next 90 days.

“Well, $127 million does not really move the dial for a company with a $30 billion enterprise value, but there’s a time when it’s more appropriate to be a seller and there are times when its more appropriate to be a buyer,” David Harris, principal and research analyst with Gleacher & Company, Inc., told CPE. Vornado’s last transaction in the office market was a joint venture transaction with the Canada Pension Plan Investment Board that gave CPPIB a 45 percent common ownership interest in 1299 Pennsylvania Ave. and 1101 17th St. for a $91 million equity investment and the assumption of 45 percent of existing debt on the properties.

“Most REIT’s have issued equity to help recapitalize their balance sheets,” Harris said. “Vornado did this but what it hasn’t done, by contrast with other major real estate companies, is be more aggressive in sourcing acquisitions. REITs should be actively managing their portfolio. They should be acquiring and redeveloping but also looking to sell.”