The U.S. office market managed to maintain investor interest mostly due to its solid base and good fundamentals. Although investment volume saw a significant dip in 2017, there wasn’t a decrease in asset prices, as acquisition yields for Class A properties have either stabilized in the 5-6% range or have dropped even further. Capitalization rates for trophy assets are now well below the 5% mark in most gateway markets, leading investors to pivot to new, highly amenitized properties in secondary markets.
Portfolio transactions have remained a staple for the industry, leading to a number of large transactions being completed last year. As a result of current market dynamics, the largest groupings of properties that traded hands were located in the country’s stronger markets, or as part of large sale-leaseback deals for sizable office campuses.
The list highlights the five most expensive office portfolio sales which changed hands during the last year. The ranking is based on Yardi Matrix data.
5. MB Real Estate – CBRE Global Investors ($550 million)
Last August, an MB Real Estate and Kayne Anderson Real Estate Advisors joint venture disposed of a 1.5 million-square-foot portfolio consisting of 25 medical office buildings, netting $550 million in the process. CBRE Global Investors purchased a 95 percent ownership stake in the properties, located across 10 states and the bulk of which were located in metro Atlanta and metro Chicago. Capital One provided the buyer a $309.5 million acquisition loan set to mature in August 2024.
The most expensive asset was the 268,000-square-foot Piedmont West in Atlanta. Completed in 2007 and situated at 1800 Howell Mill Road NW, it changed hands in a $160 million deal. Despite the change in ownership, MB Real Estate will continue to carry out property management duties for the portfolio, which is nearly 95 percent occupied by a diverse and strong national and regional healthcare tenant mix. CBRE purchased the assets in order to diversify their investments.
4. BlackRock – Starwood Capital Group ($605.5 million)
Starwood Capital Group snatched three properties from a partnership between BlackRock and General Motors Pension Trust in October 2017. The sale included 1.6 million square feet of office space and 13,700 square feet of retail space. Funding for the transaction was provided by Morgan Stanley with a $443.7 million loan.
The buildings, known as the Pacific Corporate Towers business center in El Segundo, Calif., are located at 100, 200 and 222 N. Sepulveda Blvd. The LEED Gold-certified assets underwent significant renovations in 2014 and are home to over 90 local, national and international tenants. BlackRock had purchased them from MacFarlane Partners in 1995.
3. JP Morgan Asset Management – Brookfield Properties ($875 million)
JP Morgan Asset Management sold a 4.2 million-square-foot office and retail portfolio last December. Brookfield Properties paid $875 million for the four-building, LEED Gold-certified Houston Center in Houston. Financing for the deal was secured by Citibank.
The largest property, Fulbright Tower, offers 1.2 million square feet of space along McKinney Street. The portfolio also includes LyondellBasell Tower, 2 Houston Center and the mixed-use Four Houston Center. JP Morgan acquired a 76 percent stake in the complex in 2005, subsequently buying the remaining share in 2011. Following the sale, Brookfield has embarked on a capital improvement program which will result in upgraded infrastructure and amenities.
2. State Farm Insurance – JDM Partners ($928 million)
A partnership of JDM Partners and Transwestern Investment Group acquired a little over 2 million square feet of office space in December 2017 from State Farm Insurance. The portfolio, valued at $928 million, is known as the Marina Heights office campus in Tempe, Ariz. Goldman Sachs funded the sale with a $1.1 billion loan.
The business park consists of five recently completed, LEED-certified buildings situated along East Rio Salado Parkway with sizes ranging between 271,000 and 584,507 square feet. State Farm disposed of the property through a sale-leaseback transaction. The purchase is the third transaction between Transwestern and State Farm, following the former’s acquisition of the State Farm office campuses in Dallas and Atlanta.
1. Duke Realty – Healthcare Trust of America ($2.8 billion)
Healthcare Trust of America extended its mammoth-sized footprint by becoming the owner of 17 acres of developable land and 75 medical office buildings totaling 5.8 million square feet and 730,712 square feet of hospital space in April 2017. Duke Realty received $2.8 billion for the portfolio.
The sale included Duke Realty’s entire medical office buildings and medical development platform branch. Wells Fargo Bank provided a $2.3 billion acquisition loan, while the seller raised $330 million in financing. Approximately 81 percent of the assets are located on or adjacent to a health system campus. The facilities are concentrated in Texas, Georgia and Florida.
This article uses Yardi Matrix data that includes office assets with usable areas of at least 50,000 square feet.
Images courtesy of Yardi Matrix