Monday Properties’ recent acquisition of a pair of traditional office buildings in the Washington, DC area demonstrates an investment niche the manager is seeing: rising demand for high-quality office buildings in areas where there has been substantial activity in the life sciences sector.
Tim Helmig, managing partner at the Rosslyn, Virginia-based manager, said this thesis was behind the firm’s recent acquisition of Park Plaza I and II, a 266,077-square-foot, class A office complex in Rockville, Maryland. This conviction also drove the firm’s acquisition of 1100 North Glebe, an office building with a similar profile in Arlington.
“What we see happening in these markets is that as a result of life sciences demand, traditional office tenants are finding less supply,” Helmig said.
Monday Properties believes that while the office market in the US continues to see challenges, picking spots like these and performing renovations to bring the properties in line with what today’s tenants want makes select properties a good long-term investment. The firm, for example, is conducting a $25 million renovation of 1100 North Glebe Road.
“Our renovation will bring the asset in line with our strategic vision for our office portfolio,” Helmig said. “There is some vacancy now, but we believe this will change as we take what was a traditional office building and fully modernize it.”
Renovations will include adding amenities and upgrading the building’s technology. “As employers identify opportunities in the market to create unique environments, we feel we have to meet that demand and if we don’t choose to significantly modernize an asset, it will be overlooked in favor of assets that are getting modernized technology and are providing a better tenant experience,” Helmig added.
Over the past 12 months, the firm has transacted on about $500 million of acquisitions, evenly split between office and multifamily. “In addition, we have five projects in our multifamily pipeline for our ground-up execution,” Helmig said. “That ranges from outside of the New York area into Orlando, including projects in South and North Carolina and Virginia.”
As a well-capitalized sponsor, Monday Properties has been able to access the debt markets but has still had to navigate the same rate increases and other technical factors as its peers.
“We are seeing some of the same challenges that other sponsors have experienced,” Helmig said. “The rate increases we have seen have been felt broadly across the spectrum and, no matter who you are, you’re going to experience that. We have a strong balance sheet and so, to the extent we’re not looking for significant leverage on an acquisition, we have been able to execute. We also have deep relationships with lenders that we have been able to lean on.”
While Monday Properties sees opportunities in the market and is happy with its pace of acquisition over the past year, Helmig cautions that the firm could take a more deliberate approach in the coming months.
“We think the $500 million we deployed over the past 12 months was a very good pace. But as we look at the broader global economic environment, we are going to be very mindful about how that influences the markets we participate in,” Helmig said. “In the submarkets where we own office and multifamily buildings, we think they will continue to grow and be in good stead. We are cautiously optimistic.”