Friday, April 22, 2022

Brandywine Reacquires Interest in Major Philadelphia Office Building

 By Mark Heschmeyer CoStar News

Six years after selling the Cira Square office building in downtown Philadelphia, Brandywine Realty Trust has repurchased an interest in the property in a joint venture with Michael Dell, chairman and CEO of Dell Technologies.

The group paid $383 million for the 863,000-square-foot office property at 2970 Market St. in the University City area of Philadelphia. The building is 100% leased to the General Services Administration on behalf of the IRS through August 2030.

Brandywine previously reported posting a net gain of just $500,000 when it sold the property for $354 million in 2016.

The group is looking to take advantage of University City's office market dynamics. For most of the past 15 years, University City has been one of the tightest office submarkets in the Philadelphia metro area, with its average vacancy rate often less than 5%, according to CoStar data. This comes largely thanks to the market being home to the University of Pennsylvania and its healthcare affiliate, Penn Medicine, which together form the largest employer in Philadelphia’s dominant economic engine: the education and health services sector.

The IRS currently pays rent for Cira Square that is about 40% below the current market rate, Brandywine said. That provides the joint venture an opportunity to significantly increase the rental rate upon renewal. Or, if the IRS does not renew, the building represents an excellent life science conversion opportunity, according to the firm.

Brandywine holds a 20% interest in the joint venture along with Dell’s MSD Capital and a third unidentified institutional investor.

Brandywine’s initial contribution in the new joint venture was $28.6 million, the Philadelphia-based real estate investment trust said in its first-quarter earnings report. The REIT funded the acquisition through the sale of a vacant land parcel at 25 M St. NW in Washington, D.C., for $29.7 million. The Swedish construction firm Skanska said in a statement Thursday it bought the parcel.

At the closing of the Cira Square deal, the joint venture secured a $257.7 million mortgage loan from Bank of America, according to Philadelphia County records. The loan matures in two years, Brandywine said.

The REIT will provide management and construction management services to the joint venture.

Cira Square was sold to the joint venture by a fund set up by Korea Investment Management Co. based in Seoul, South Korea.

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