Candler Building on the market $65 million is asked 18 months after owner paid $21.8 million

January 17, 1998|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Spurred by renewed investor interest in downtown office properties and the lure of abundant capital searching for real estate, the Washington, D.C., owners of the Candler Building have begun marketing the 12-story tower for sale for around $65 million.

But if it seems like just yesterday that the Meridian Group Inc. bought the 111 Market Place office building, it practically was.

Of course, when Meridian acquired the former Coca-Cola Co. warehouse from an affiliate of the General Electric Co. for $21.8 million some 18 months ago, the building was one-third empty and businesses were leaving downtown for dead. Today, the Candler Building is almost full, with a tenant roster that would make most landlords envious.

But even in today's market -- when a single downtown signature skyscraper sells for $137 million -- can Meridian generate a more than 300 percent return in only a year and a half?

"It's still a bargain," said Bruce Lane, a Meridian Group Inc. partner. "The market is hot right now; we have a spectacular building, and people believe it is a good time to invest. Remember, too, that when we bought Candler, no one was investing in [central business district] properties, and we took a big risk. But it is amazing. It sure beats the stock market, doesn't it?"

Meridian isn't the only downtown office building owner hoping to cash out by taking advantage of a hot market, unprecedented recent sales prices, vanishing vacancies and a local economy perceived to be in the midst of recovery.

The owners of the 30-story Alex. Brown Building at 1 South St. and the mortgage holder on a 26-story tower at 250 W. Pratt St. are also in the process of selling out to the highest bidder.

And in all three cases, the owners of the buildings and of the debt that built them are likely to get their asking prices.

"There's an extraordinary amount of capital out there now pursuing well-leased properties in central business districts, especially those properties that can be acquired for 70 percent of their replacement costs," said Philip C. Iglehart, the Colliers Pinkard principal responsible for selling the 550,000-square-foot Candler Building.

Consider the Yarmouth Group, a $7 billion New York pension fund adviser. When it bought the $56 million in debt on the 357,112-square-foot 250 W. Pratt for $32 million in December 1994, local commercial real estate pundits saw a bargain. If they only knew.

Next month, TrizecHahn Corp., owner of the mammoth Towson Town Center and the company that in December bought control of the 110-story Sears Tower in Chicago, is expected to snap up 250 W. Pratt St.'s debt for around $50 million. At that price, Yarmouth will receive a 156 percent return on its investment in just over three years.

"Yarmouth was happy with the performance of the building, but they wanted to deploy the funds in it elsewhere," said Timothy J. Cahill, senior vice president and head of the local office of CB Commercial Real Estate Group Inc., which is marketing 250 W. Pratt St.

Harlan Co. Inc., of New York, is hoping for the same results as it begins pitching the 30-story Alex. Brown Building, constructed together with Kajima Development Corp. at a cost of $90 million.

"Real estate markets nationally are hot right now, so it's an opportune time for us to sell the building," said Leonard Harlan, president of the company. "We've already had a lot of interest, and it'll get a good price, though I'm not in a position to say exactly how much at this point."

Harlan expects to have a deal for the 450,000-square-foot tower within a few months.

It's little wonder that the Candler, Alex. Brown and 250 W. Pratt St. owners are considering cashing out, thanks to an explosion of real estate investment trusts flush with capital and eager to augment their portfolios.

Locally, Boston Properties Inc. touched off the buying spree in late October, when it spent $137 million for 100 E. Pratt St.

And though most experts believe that the price the 28-story high-rise fetched was an anomaly, they acknowledge that the 630,000-square-foot building's sale represents a local manifestation of a national trend.

Moreover, analysts contend, the sale of 100 E. Pratt St. heightened interest in local real estate.

"We're in a cycle where over the next 18 months, most properties of note are going to be gobbled up," said Milton H. Miller Jr., a principal in Miller Corporate Real Estate Services Inc., a Baltimore real estate services firm.

Almost more than any other company, TrizecHahn personifies the feeding frenzy. Last year alone, the Toronto-based REIT invested about $1.5 billion to acquire the Grace Building in New York, Citicorp Center in Los Angeles and Renaissance Tower in Dallas, among others.

In fact, all three owners of the buildings on the market expect their buyers to be institutions such as REITs or well-capitalized pension funds.

"I would say with confidence that ours will be an institutional deal," Harlan said.

Pub Date: 1/17/98

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