Washington Office Center / Washington Design Center Sale

Washington Office Center on left and Washington Design Center on right (with Washington Office Center partially visible behind it)

Today the Washington Business Journal reported that Vornado has selected a buyer for its Washington Office Center (409 3rd Street, SW) and Washington Design Center (300 D Street, SW) properties in Washington, DC’s Southwest submarket. The two connected buildings sit directly on the Federal Center SW Metrorail station and occupy the entire triangular-shaped block bounded by Virginia Avenue, 3rd, 4th, and D Streets, SW. At over 800,000 square feet, this will be among the largest sale transactions in the Washington, DC region this year. The complex is at the very heart of the Southwest DC federal enclave and completely surrounded by properties that are either leased to, or owned by, the US Government, which should enhance its long term leasing success. This investment is a fascinating amalgam of old and new, artsy and mundane, core and opportunity. The Office Center is a modern office building that we’d rank in the “B+” category. It’s anchored by a long term, 250,000 SF GSA lease for the Small Business Administration (SBA), with most of the remaining space leased to other GSA tenants, such as HHS, HUD and DOT. Based on the reported sales price of $186 million ($450/SF) for the Office Center component, we estimate the cap rate to be 6.6% to 7.0%.

The narrower piece of the pie wedge is the Washington Design Center, an historic brick warehouse constructed in the 1920’s, expanded in the 1980’s and leased to dozens of manufacturers and suppliers of high-end home furnishings.  With over 300,000 SF of showrooms, the Design Center is frequented by many interior designers, architects and retailers from across the region. The disposition of the Washington Design Center represents another step forward for Vornado in its effort to divest itself of the Merchandise Mart assets acquired in 1998. Together, the Washington Office Center and Washington Design Center offer the creative purchaser a tremendous opportunity. Improving the potential for redeveloping or repositioning the Design Center, the site accommodates 200,000 SF of additional FAR in a submarket that has traditionally held its vacancy rate well below 10 percent.

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