Falls Church Office Building Sells For Double 2017 Price In Pandemic-Era Upset

An office property in Falls Church has sold for more than double the price it traded for in 2017, following a major renovation and lease-up effort, a deal that shows there is still strong investor appetite for stable office assets. 

Boston-based Marcus Partners has sold the office property at 3170 and 3180 Fairview Park Drive for $87.5M to a joint venture of Vanderbilt Office Properties and Estein USA.

Marcus Partners acquired the asset in 2017 for $33.1M, property records show. It invested another $15M in the renovation effort and signed 100K SF of new leases. Newmark Knight Frank represented Marcus Partners in the leasing efforts and the sale.

The team brought the building to market in June, during the height of the coronavirus pandemic. Marcus Partners Regional Director Andrew Dolinsky said it decided to bring the property to market at that time because it believed its weighted average lease term of 11 years and newly completed renovations would attract buyers. 

"Clearly, we decided to launch in an unprecedented and uncertain period of time, but the merits of the property gave us the confidence to begin the marketing process," Dolinsky told Bisnow. 

Dolinsky said the sale represents a successful execution of Marcus Partners' strategy, and it shows there is still strong investor appetite for office assets that have stable income streams. 

"For the right assets, buyers are interested in putting capital to work for properties that have staying power," Dolinsky said. "We saw this process as a highly competitive environment overall in terms of activity from institutional investors, as well as from a pricing standpoint."

Newmark Knight Frank Executive Managing Director Jud Ryan said this deal represents the first D.C.-area office property to hit the market and sell during the pandemic. He also said the building's average lease term contributed to the decision to sell despite the uncertainty in the market.

"They had really maximized value here," Ryan said. "The property was 98% leased, the weighted average lease term wasn't going to get any longer, and while there weren't many data points, they felt the market would be receptive to a long-term leased, renovated asset like this. And they were right."

Ryan said the team was surprised by the depth of the buyer pool that was interested in the asset, and he attributed the sale price to the stability of the building's occupancy. 

"We're in unknown times here, and investors are looking for durable cash flow, safety and yield," Ryan said. "They really set this project up well to tailor to what investors are looking for right now."

NKF's James Cassidy and Cliff Cummings represented the seller along with Ryan. NKF's Joe Donato and Kassidi Saridakis worked with the buyer to finance the asset, and NKF's Andy Klaff, Ed Clark and Jeff Tarae managed the building's leasing. 

The 284K SF office property is part of the 12-building Fairview Park complex that surrounds the Falls Church Marriott Fairview Park. It sits near the interchange of the Beltway and Route 50. 

The 2017 sale was executed as a sale-leaseback deal with former owner-occupier CSRA. The information technology company remained in the building but left 100K SF available for Marcus Partners to lease to other tenants. 

Marcus Partners then spent $15M on an extensive renovation effort. It added a new fresh food offering, a 5K SF fitness facility with locker rooms and a group fitness studio, a 100-seat auditorium, a 100-seat conference facility and new indoor and outdoor gathering spaces. 

Several new tenants signed leases at the building while Marcus Partners owned it, including Balfour Beatty, Sheel Metal Workers National Pension Fund and Capital Caring Health.

The new deals had rents in the mid-$30/SF range, representing 25% rent growth for the property, Ryan said. He said Fairview Park still rents at a discount to office properties in the nearby Tysons area, adding that the 12-building complex has experienced 700K SF of leasing activity over the last four years. 

"With the Metro extension running through Tysons, you've seen massive rent growth in that market, and this has become for some users an attractive price alternative," Ryan said. 

The deal appears to be the first D.C.-area acquisition for Vanderbilt Office Properties and for Estein USA. Chicago-based Vanderbilt owns properties in Raleigh, South Florida, Austin, Dallas, Chicago, Nashville, Jacksonville and St. Louis, according to its website.

Orlando-based Estein USA's portfolio is concentrated in its hometown and in Dallas, with additional holdings in Chicago, Las Vegas and New Jersey. The two buyers didn't respond to requests for comment. 

After selling the Falls Church asset, Marcus Partners plans to acquire more D.C.-area properties, Dolinsky said. The firm in April hired Paul Stromberg from Carr Properties to help grow its D.C.-area portfolio. It also owns properties in Dupont Circle and Rockville.

"We're very focused on growth overall in the D.C. region, and I see us continuing to expand over the coming years," Dolinsky said.