WRIT Pockets $307M on First Phase of MOB Portfolio Sale

In two separate transactions with Harrison Street Real Estate Capital, Washington Real Estate Investment Trust closed the sale of office buildings totaling 877,000 square feet, two office assets featuring significant medical office tenancy and a parcel of land for $307.2 million.

WRIT - Paul T  McDermott President  CEO

Washington Real Estate Investment Trust has taken one big leap toward completing the disposition of its metropolitan Washington, D.C., medical office portfolio. In two separate transactions with Harrison Street Real Estate Capital L.L.C., the REIT closed the sale of office buildings totaling 877,000 square feet, two office assets featuring significant medical office tenancy and a parcel of land for $307.2 million.

In the first transaction, WRIT parted with 2440 M St. in Washington, D.C., and other properties in Maryland and Virginia, including Alexandria Professional Center; Woodholme Medical Office Building; 9850 Key West Avenue; 15001 Shady Grove Road; 15005 Shady Grove Road; 6565 Arlington Boulevard; 19500 at Riverside Office Park; 9707 Medical Center Drive; Woodholme Center; CentreMed I & II; Ashburn Farm I, II and III; 8301 Arlington Boulevard and Sterling Medical Office Building. The second transaction involved a parcel of land that is presently being utilized as overflow parking for Alexandria Professional Center.

“As planned, the structure of this large transaction has provided WRIT the flexibility to redeploy the sales proceeds into assets that are aligned with our current strategy,” Paul McDermott, president & CEO of WRIT (pictured), noted in a prepared statement.  Those assets include high-quality downtown office buildings and well-located retail and multi-family properties.

Upon the anticipated January 2014 completion of the second phase of the disposition, which will also consist of two separate transactions involving Woodburn Medical Park I & II in Annandale, Va., and Prosperity I, II and III  in Merrifield, Va., Harrison Street will have acquired WRIT’s entire 1.5 million-square-foot medical office portfolio for an aggregate $500 million.

The MOB sub-sector of the office market is on fire. As noted in a mid-year report by commercial real estate services firm Cushman & Wakefield Inc., with strong leasing fundamentals, the MOB investment arena continues to outperform other sectors of the commercial real estate market. Still, WRIT’s decision to retreat from the sub-sector makes sense for the company; there’s a method to what some may construe as madness.

“The sale of their MOBs, like the sale of their industrial portfolio two years ago, was excellent from a strategic, pricing and timing perspective,”  John Guinee III, managing director with brokerage and investment banking firm Stifel Nicolaus & Co. Inc., told Commercial Property Executive. But having half-a-billion-dollar to play with in pursuit of a new investment strategy may not be as simple as it seems. “The WRIT challenge is what to do with the proceeds, as the D.C.-area real estate investment sales market remains hot with a disconnect between pricing and fundamentals–high versus uninspiring,” Guinee added.