IF THESE WALLS COULD TALK: Wire taps, break ins and capital gains

The historic office building at 2600 Virginia Avenue NW, overlooking the Potomac River in Washington DC, doesn’t have a famous exterior like that of the White House, the Washington Monument or other landmarks in the US capital. What is instantly recognizable, however, is the property’s name: Watergate.

The 11-story, 260,000-square-foot office and retail property was just a few years old on June 17, 1972, when five men were arrested for breaking into and electronically bugging the headquarters of the Democratic National Committee, then located on the building’s sixth floor. The botched burglary, which had been ordered by top officials in the administration of President Richard Nixon, set off a chain of events that exposed a wider campaign of political spying, sabotage and cover-up by the administration, eventually leading to the unprecedented resignation of Nixon on August 9, 1974.

The enormity of the scandal – one of the biggest in US history – has made Watergate synonymous with scandal and corruption. “Journalists have used the powerful association of the word ‘Watergate’ to sensationalize and label other political scandals or potential scandals by creating shorthand catch-phrases with the suffix ‘-gate,’” according to the National Register of Historic Places, which listed the entire Watergate complex – comprising 2600 Virginia Avenue NW and five other interconnected properties – in 2005.

In spite, or perhaps because of, its infamous link to US history, the Watergate office building has remained a sought-after asset in the private equity real estate world, changing hands among several players in the industry over the years. In September, Penzance Companies, a Washington, DC-based office investor and owner, reportedly was under contract to acquire the building from its current owner, BentleyForbes, a privately-held real estate investment firm based in Los Angeles.  

An auspicious start
The Watergate complex was constructed between 1964 and 1971 by Italian development company Società Generale Immobiliare (SGI) on a 9.4-acre former industrial site in the Foggy Bottom section of Washington, DC. The Vatican was a major investor in SGI until 1969, making the city-state a part-owner of Watergate for a brief time.

The triangular parcel that is home to the Watergate complex is bound by the Potomac River and Rock Creek Parkway on the west, Virginia Avenue on the northeast and New Hampshire Avenue on the southeast. Aside from the Watergate office building, the other properties on the site include: Watergate East, a 13-story apartment building; the Watergate Hotel, which is connected to the Watergate office building on all floors; the apartment buildings Watergate West and Watergate South; and the 12-story 600 New Hampshire Avenue office structure.

The six buildings, which are constructed with reinforced concrete and arranged in a “boomerang” formation, also are significant as the only work in the US by Luigi Moretti, one of the most prominent Italian architects during the 20th century.  In Italian architectural circles, Watergate is famous not for its connection to political scandal, but as the most ambitious and fully developed example of Moretti’s design approach, which utilised the application of mathematical principles.
The complex, built for a total cost of $78 million, initially was owned by Watergate Improvements, a division of SGI, but changed hands in 1977, when financier Nicholas Salgo and Continental Illinois Properties bought out SGI’s stake in the development for $49 million. Two years later, Continental Illinois sold its stake to the National Coal Board Pension Fund in the UK, with Salgo following suit in 1986.

In 1993, the UK pension fund sold the office building to a joint venture consisting of JBG Companies, a Chevy Chase, Maryland-based real estate investor and developer, and Bethesda, Maryland’s Buvermo Properties. The partnership went on to transfer the asset to Trizec Properties (now part of Brookfield Office Properties) in 1997. 

In 2005, BentleyForbes, through a joint venture with Chicago-based real estate investment firm Capri Capital Partners, acquired the property from Trizec for $86.5 million. Under the partnership, however, the Watergate building once again became the subject of legal troubles, with Capri suing BentleyForbes in December 2009 for control of the building. In its suit, Capri alleged that BentleyForbes violated the partnership agreement by failing to make payments to the Capri Select Income II fund, which initially provided $12.5 million toward the acquisition of the Watergate building and later invested an additional $1.8 million.

Penzance is expected to close on its purchase of the asset later this fall, which would mark the second trade of the property in six years. This is the third time BentleyForbes has put the building on the market, after unsuccessfully seeking a buyer in 2008 and 2009.

Incidentally, the 1972 burglary at the Democratic National Committee’s headquarters was not the first break-in to occur at the Watergate complex. Nonetheless, it shares an interesting connection to the first, which occurred at a residential unit in 1969. The victim was Rose Mary Woods, who had jewelry and some personal items stolen from her apartment. She was President Nixon’s personal secretary.