Top Office Deals

2016 Transaction Recap

By Ioana Neamt on Mar 25, 2017 in News

The U.S. commercial real estate market took something of a respite in 2016, during a year characterized by political volatility. Compared to the previous year, when the market fired on all cylinders, office players were more cautious in 2016, with leasing and sales activity cooling down to more sustainable levels, per most industry reports.

Office tenants were reluctant to make any major moves pending the conclusion of the presidential election, thus lease renewals and consolidations took the stage in the past year. Though office sales activity also decreased 7% year-over-year, according to Colliers, the national transaction volume was still the fourth-highest yearly total in the past 15 years, reaching $140.5 billion.

We enlisted the help of Yardi Matrix sales data to round up a list of the 50 largest office deals of 2016. The results of our analysis aren’t all that surprising: the New York City office investment market remains the most attractive destination for both local and offshore buyers, though other markets also landed a good deal of capital in the past year. The U.S. office market is poised to become even more attractive in the future, especially to foreign investors, if Brexit goes through.

Check out the list of the top 50 largest office deals of 2016 on the CommercialCafe blog.

NYC Home to Largest Single-Asset Sale of the Year

The priciest office transaction in New York City and the second-largest overall office deal of the year was the $1.93 billion sale of the AXA Equitable Center at 787 Seventh Avenue in Manhattan. One of the biggest investments in pension fund CalPERS’ history, the sale closed Jan. 27, 2016, at $1,179 per square foot. The 51-story, 1.6 million-square-foot tower is LEED certified and includes 49,000 square feet of retail space, a parking garage and access to the underground concourse of Rockefeller Center. CalPERS bought the property from AXA Financial.

Asian Investment Accounts for 15% of the Top 50 Sales of 2016

Drawn by the array of investment opportunities, the promise of long-term, stable returns and property market stability, foreign investors are now pumping more and more money into U.S. commercial real estate, with a clear focus on office assets. Seven out of the top 50 office deals of the year were closed by Asian buyers, accounting for 15% of the total sales volume.

Notable transactions included China Life’s $1.64 billion purchase of 1285 Avenue of the Americas in New York, in a joint venture with RXR Realty; the Hong Kong Monetary Authority’s $1.15 billion acquisition of 1095 Avenue of the Americas; Mirae Asset Global Investments’ $825 million partnership with Transwestern, with the firm landing 2.2 million square feet of Dallas office space for rent; and Korea Investment Management Co.’s $354 million buy of 2970 Market St. in Philadelphia.

It comes as no surprise then that the market has become a haven for offshore investors, who are pumping record amounts of capital into U.S. office assets, especially in primary urban cores. According to JLL research, foreign office investment surpassed $20 billion in 2016, accounting for 16% of the overall acquisition volume. And while, historically, Canadians have been the most active foreign players on the market, Asian and German investors are now stealing the spotlight.

According to an Asia Society special report, China overtook Canada as the biggest foreign buyer of U.S. homes in 2015 and is already the largest holder of residential mortgage-backed securities issued by U.S. government-sponsored enterprises. A recent Rhodium Group study further shows that Chinese companies invested a record $45.6 billion in the U.S. economy in 2016, triple the amount recorded in 2015. Most investments came in the form of acquisitions, which accounted for $44 billion, per the study, primarily focused on real estate and hospitality.

Portfolio Deals Making a Comeback

Though investment was mainly focused on single-asset transactions, there were a few major portfolio deals that made the news in 2016. However, portfolio volumes are lagging behind prior cycle levels, per JLL—in 2006-2007, large portfolio deals drove activity in the office sector, without even taking the Blackstone-Equity Office merger into account. Even so, the largest office sale of 2016 was a portfolio deal, with entity-level transactions expected to multiply in the following years. We thought we’d take a look at the most notable portfolio deals of the past year:

• Cousins Properties, Parkway Properties merge in $2B deal– The two companies struck a $1.95 billion deal in August of last year, to merge and spin off their Houston assets into a separate REIT dubbed Parkway Inc. The Space City portfolio comprised five Class A office assets featuring 19 buildings, totaling roughly 8.7 million rentable square feet in the Greenway, Galleria and Westchase submarkets, according to Commercial Property Executive. The cross-market portfolio also included assets in Florida, Arizona, Georgia, North Carolina and Pennsylvania.
• Blackstone Grabs Alecta’s $1.7B US Portfolio – In December 2016, Blackstone closed on the $1.7 billion acquisition of Swedish pension fund Alecta’s U.S. real estate portfolio, adding 21 new assets to its holdings. The portfolio included office, retail, industrial and multifamily assets located in top-tier locations such as San Francisco, Chicago and Washington, D.C.
• Ventas Acquires $1.5B Wexford Science & Technology Portfolio – Back in September, Ventas Inc. made the news with the $1.5 billion buy of Wexford Science & Technology’s 23-property life science and medical real estate portfolio, from affiliates of Blackstone Real Estate Partners VIII LP. The Class A assets total 4.1 million square feet and are leased to leading universities, academic medical center and research companies such as Yale University, the University of Pennsylvania Health System and Alexion Pharmaceuticals Inc.
• Blackstone Affiliate Nabs Hines REIT’s West Coast Portfolio – As part of its liquidation and dissolution plan, Hines REIT sold a seven-asset, 15-property office and retail portfolio to Blackstone affiliate Equity Office in November. The total price tag for the 3 million-square-foot portfolio, which included assets located in Los Angeles, Seattle, San Jose and San Mateo, was $1.162 billion in cash.
• Liberty Property Trust Sheds $969M Worth of Office, Flex Assets – In early October 2016, Workspace Property Trust, together with Dubai-based Safanad and affiliates of Square Mile Capital Management, closed on the acquisition of a 108-property portfolio from Liberty Property Trust. The portfolio included office and flex buildings and 26.7 acres of land in suburban markets in Philadelphia, Minneapolis, Tampa, Phoenix and South Florida. WPT shelled out $969 million to acquire the assets, bringing its portfolio to 149 properties totaling roughly 10 million square feet.
• Starwood Buys Stake in NorthStar Realty’s Healthcare Assets – Starwood Capital Group paid $838 million to acquire 34 of NorthStar Realty Finance’s medical office assets in December. NorthStar Realty looked to divest 20% of its portfolio in preparation for its merger with NorthStar Asset Management and private equity firm Colony Capital, which was completed in January 2017. NorthStar also unloaded a $1 billion stake in its healthcare portfolio to China-based Taikang Life Insurance back in November.

Interested in more insight about the Top 50 office deals of 2016? Visit the CommercialCafe blog.