PRP, formerly Perseus Realty Partners, has entered into a pre-sale contract to acquire two Washington DC office buildings from the American Association of Medical Colleges (AAMC) on behalf of its second US fund. Because of the three-year pre-sale with AAMC, which will close in April 2014, the Washington DC-based real estate investment firm was able to purchase both buildings for a total of $65.25 million – a roughly 50 percent discount to replacement costs.
According to Paul Dougherty, president of PRP, the reason for the pre-sale agreement was so AAMC could move to a new nearby headquarters and, in turn, PRP could acquire the properties at a significant discount. “It allowed AAMC to show their investor base that there's an exit for the buildings as they move to their new offices, and it allowed us to lock in assets at a below-market price, as well as giving us the chance to explore different options for the buildings over the next two years,” he said. “It worked out well for everyone.”
2501 M St.
The two buildings, which currently are owned and occupied by AAMC, comprise a total of 186,000 square feet and are located on 2450 N Street NW and 2501 M Street NW in Washington’s West End submarket. “DC is a very competitive market,” said Dougherty about why PRP wanted to acquire the buildings. “They're in a section of DC that's built out, so there's little room for competition.”
AAMC is expected to vacate the buildings by the first quarter of 2014, when the organisation completes its move to a new headquarters in Washington DC. The pre-sale period will provide PRP with 36 months to market the buildings for either lease or sale.
According to Dougherty, PRP intends to sell 2450 N Street to a user, such as an endowment or association, and convert 2501 M Street to medical office use. The local medical office market has a 96 percent average occupancy rate, and rent growth in the subsector has outpaced the overall office market, he noted.
This pre-sale transaction completes the investment period for PRP II, the firm's $235 million US-focused opportunistic vehicle. Launched in the spring of 2008, PRP II so far has invested in eight assets in the office, industrial and multifamily sectors, and Dougherty believes the fund has one more asset to acquire in before it's fully invested.
Meanwhile, PRP is getting ready to launch its fourth fund, which also will be a US opportunistic fund targeting office, industrial and multifamily assets. PRP IV is targeting roughly $300 million in equity commitments, and the firm expects to offer a 9 percent preferred return with no catch-up. In its current fund, PRP underwrote to a gross IRR of 20 percent but, given early realisations from previous funds, may raise the new fund's target gross return to 22 percent.