2099 Pennsylvania Pricing Reflects Larger Trends

WASHINGTON, DC-More information is emerging about the pricing for 2099 Pennsylvania Ave., NW. The price under contract, a source says, is $155 million. The price per square foot, however, is a little trickier to call. Some records show the building at 206,000 square feet, which would make the price per square foot $750. Other sources reports the sale to be $155 million and put the building’s size at 199,640 square feet—and thus its price per square foot at $776. The buyer, Paramount Group, declined to discuss pricing with GlobeSt.com.

Either way, the pricing is in line with larger trends in the DC area. 2099 Pennsylvania “is a very high quality building, but there is a significant impending vacancy to contend with,” Scott Homa, research director with Jones Lang LaSalle, tells GlobeSt.com. Namely there is 131,000 square feet of space due to roll over in the building in the next 12 months, according to Albert Behler, president and CEO of Paramount Group. “The pricing reflects the risk associated with the building and the vacancy rate,” Homa says. “It is a market deal—and a good buy for Paramount.”

That is the way pricing has been moving for the past twelve months, he adds, citing a newly released capital markets report by JLL that examines trends in the region. Last year there was an uptick in pricing in the first half of the year, reaching a high of $340 per square foot. Then prices dipped in the second half of the year. Currently they are still down 10% from last year, but average pricing is still up 12.4% from 2009, JLL notes in the report.

However, these fluctuations detract from the main story line, which Homa says is that asset-to-asset capital values have held steady. “Prices have hit a plateau,” he says. “Also, there has been a bit of a fundamental shift in how investors view risk and how they underwrite vacancy.”

In 2010 when the area was in an upswing and the government was fueling recovery it was easy to underwrite rent growth and make some fairly aggressive assumptions, he says. “Now, the uncertainty associated with high vacancies can be a real problem. Investors are looking for the predictability of cash flows and buying in-place net operating income.”