The office park in Suffolk dates back about 25 years. (Thalhimer)
At the height of the pandemic, local real estate investment firm John B. Levy & Co. came across what it thought was a bargain in a Maryland office park. The value of offices had fallen in 2020 when much of the world was working remotely, and the firm bet that offices wouldn’t sit vacant forever.
Levy & Co. was right. It sold the office park around two years later for $6 million more than it paid for it. Now, years later, enduring apprehension around the office market has led the firm to make another unexpected deal out of town.
Last month the firm acquired the Bridgeway Technology Center at 7025 Harbour View Blvd. in Suffolk for $31.6 million.
The 261,000-square-foot building sits near the Monitor-Merrimac bridge-tunnel and is fully leased to tenants including Lockheed Martin, Smithfield Foods and the Commonwealth of Virginia.
Bram Levy
Bram Levy, head of new business development at Levy & Co., said the firm wasn’t actively looking for more office deals, but Bridgeway was a product of the broader real estate market still being wary of offices.
“The capital markets still think of office as a four-letter word, and I think that creates opportunity. This is an asset that’s 100% leased to a really good, long-standing tenancy in a fantastic office submarket,” Levy said. “But it was priced like an office building. There was a classic dislocation between stabilized cashflow and fears of the office category.”
The sale closed Sept. 16. Levy declined to share details about the deal’s capital stack but said the firm had equity from a few unidentified business partners and debt financing from a life insurance company. Levy said he thinks banks are still skittish about financing such office acquisitions.
“If you call capital markets on either equity or debt, and you say, ‘I’ve got an office deal,’ 80% of the calls are going to be short. You are going to get a tremendous amount of, ‘We’re not doing a lot of office,’ or ‘We’re full in office,’” he said. “Office has gotten this broad brushstroke that says it’s risky. (But) a half-vacant downtown office tower is very different from a 100% multitenant stabilized building in a great submarket.”
Levy said his firm isn’t now explicitly looking for offices, but it does have another one in the works. He added that he thinks other investors may eventually come back around to offices, but that it’ll have to start with capital markets, which have been “frozen, if not really cold,” to office.
“I do think they’re thawing. Now, with the (interest) rate environment where we are now, that thaw may take longer,” Levy said. “But I do think people are starting to understand that there is nuance in (office), and I think that’s going to keep happening.”
Levy & Co. isn’t the only local firm to see upside in the office sector.
Henrico-based Marwaha Investments has been extra bullish on office in recent years. The firm, led by Gagan Marwaha, has spent at least $66 million in the past three years on office buildings all over the region, including the former Circuit City headquarters and the Holland Tower in Henrico, and the Gateway Centre office park in Chesterfield.
Marwaha’s strategy has been to buy mostly distressed office buildings and, in lieu of trying to bring in large anchor tenants to occupy the entire building, break up the floor plans into smaller spaces for multiple tenants. Levy acknowledged Marwaha as someone who’s been on “the pioneering front” of local office deals.
Levy & Co. is also looking at other property types. Earlier this year it bought into a multifamily building that’s rising near its home office with an equity investment in The Verve, a nearly 300-unit apartment building in Innsbrook.