A local Washington, D.C., investment firm has purchased one of the city's well-known office properties for about one-third of its prior sales price, in a bet that valuations will recover from staggering lows.
An affiliate of Douglas Development paid $34.3 million to acquire the downtown Portrait Building at 701 Eighth St. NW, right across the street from the National Portrait Gallery and a short walk from the Capital One Arena. The deal, closed earlier this month, is the latest chapter for the troubled property that was handed back to lender Voya Investment Management earlier this year.
"It was an extraordinary opportunity to buy a well-located, Class A asset at a price that will seem absurd in a very short period of time,” said Douglas Development Managing Principal Norman Jemal.
Former owner Clarion Partners purchased the roughly 134,500-square-foot property for $98.5 million in early 2013 when it was about 90% occupied, according to property records and CoStar data. The New York investment firm turned it over to Atlanta-based Voya in May through a deed in lieu of foreclosure.
A lot has changed in the decade-plus since for both the Portrait Building, and the D.C. office market as a whole. Occupancy levels at the property have fallen below 50%, according to CoStar data, and the myriad impacts dealt by the COVID-19 pandemic have left the region struggling to regain the momentum it needs to deal with record-high vacancy levels. Office markets in other cities across the country are also seeing lower valuations.
Availability in D.C.'s East End — the sixth-largest office market in the country by total inventory and where the Portrait Building is located — surpassed 25% by the end of last year, according to CoStar data, and it has struggled in the face of plummeting rents and valuations.
Those challenges are unlikely to be resolved anytime soon, given that leasing volume in the area has fallen to nearly 40% below pre-pandemic levels, according to the data.
Even so, firms such as Douglas Development see a limited window of opportunity to take advantage of the deeply discounted prices ahead of what they're betting will be the city's imminent office market rebound.
The deal is the latest in a domino line of similar office acquisitions eager investors have made despite the difficult financing environment and D.C.'s uncertain office demand outlook.
A joint venture between MRP Realty and Global Fund Investments paid $39 million earlier this summer to purchase the two-building Offices at Gallery Place, a property that fell under receivership last year after former owner Oxford Properties defaulted on its loan. The property was assessed for a total of nearly $226 million earlier this year.
The Portrait Building, which was recently renovated to include some new tenant amenities, has a proposed assessed value for 2025 of $57.3 million, according to D.C.'s Office of Tax and Revenue.