JV Closes on $1.1B Office Buy from DRE

GREENWICH, CT—Starwood Capital Group, headquartered here, said Thursday that a Starwood-led group had completed its $1.1-billion off-market acquisition of a suburban office portfolio from Duke Realty Corp. GlobeSt.com reported in January that the deal between DRE and a joint venture of Starwood Global Opportunity Fund X, Vanderbilt Partners and Trinity Capital Advisors marks DRE's exit from several suburban markets.

The portfolio includes approximately 6.9 million square feet across 62 buildings, including one under construction in Raleigh, NC, and 57 acres of undeveloped land in Raleigh and South Florida. The forthcoming Raleigh property will be sold to the JV upon its completion in late 2015.

Marking DRE's exit from the Raleigh, St. Louis, Nashville and South Florida markets, the portfolio is currently 91% leased, compared to a companywide average of 95.3% occupancy at the end of 2014. The new owners are assuming responsibility for leasing and management.

"We believe that we are at an attractive point in the cycle to enter suburban office markets that are well-positioned for growth,” says Christopher Graham, senior managing director and Americas head of real estate acquisitions at Starwood Capital. He adds that “we will continue to seek out investments in the sector on an opportunistic basis.”

DRE's chairman and CEO, Denny Oklak, says the sale to the JV enabled his company “to take advantage of the currently very active and competitive investment sale environment and continue our strategy to reduce our investment in suburban office assets and increase our investment focus in state-of-the-art bulk industrial and best-in-class medical office properties.” He adds that proceeds from the sale will be used to repay debt and to fund ongoing property development activities.

Separately from the acquisition, Starwood Capital announced a disposition. A consortium including TPG, Perry Capital LLC and WLR LeFrak sold off Laketown Wharf, a residential property with a retail component in Panama City, FL, for an undisclosed sum. The property was the last major asset in the $4.5-billion face-value distressed loan portfolio once owned by the former Corus Bank and acquired by the consortium in October 2009 from the FDIC.