Boston Properties Inc. yesterday sold two large office buildings in Southwest Washington to Wells Real Estate Investment Trust, the largest deal yet in a boom year for commercial building sales in the area.
Wells paid $345 million for Independence Square I and II, occupied by the Office of the Comptroller of the Currency and the National Aeronautics and Space Administration, respectively. They are located on E Street SW, hugging the Southwest Freeway. Together, they contain 948,813 square feet of office space.
Wells saw in the deal the chance to obtain steady cash flow, according to a company news release. Boston Properties, which built the structures in the early 1990s and will continue to manage them, sold the buildings to help pay for a New York skyscraper it recently acquired, said Chief Financial Officer Douglas T. Linde.
"These have been wonderful buildings for us, but we want to shift to other assets with more upside potential," Linde said.
While leasing activity has been light this year, indicating less demand from tenants to rent office space, it has been a very good year to sell a building. The reason: Investors reeling from the slumping stock market and low interest rates have flocked to the comparative safety of investing in commercial real estate, particularly in relatively stable markets such as Washington.
For property like Independence Square, in which the tenant is a good credit risk locked into leases that don't expire for years, an owner can count on steady returns on investment higher than what bonds typically pay. That has driven an influx of money from pension funds, insurance companies and other investors, of which the Independence Square sale is the biggest recent example.
It also has driven up the average price of D.C. office buildings. According to Transwestern Commercial Services, office space has sold for an average of $273 per square foot this year, not including the Independence Square deal; in 2001, that figure was $244. Independence Square sold for $364 per square foot.
"This is a trophy transaction," said Donald A. McCully, an investment sales broker for Transwestern who was not involved in the transaction. "It reflects a creditworthy tenant in a market where buyers don't have a lot of options on where to put their money."