Peakstone Realty Trust is moving quickly on plans to part ways with its national office portfolio — even if it means offloading properties at hefty discounts.
The Southern California real estate investment trust is aiming to land deals for all of its remaining office assets by the end of the year, executives have told analysts, a plan that has already resulted in two substantially discounted sales despite both being fully leased to high-profile tenants.
In the Boston area, Peakstone closed a deal with Montana Avenue Capital Partners for a two-building complex in Burlington, Massachusetts, that houses the corporate headquarters for beverage giant Keurig Dr Pepper. The Los Angeles-based Montana Avenue paid just $84.5 million for a pair of properties that last sold in 2021 for an estimated $191 million as part of a much larger portfolio.
The Massachusetts transaction closed within days of Peakstone finalizing another deal to sell a fully leased, prominent office campus at 1300 W. 120th Ave., Westminster, Colorado, in the Denver area, for a 65% discount compared to its earlier investment.
The REIT's eagerness to sell off office properties may appear to be a head-scratcher considering the properties' solid tenancy and the widespread recovery taking hold across the United States.
For Peakstone, however, it's all part of a plan to shift its focus to its industrial real estate business.
Faster exit
The El Segundo, California-based REIT has been quick to finalize deals, selling more than 12 properties over the past few months for more than $450 million. Executives said they still have a disposition pipeline that includes about 10 more that, thanks to improving market dynamics across the United States, are likely to go just as fast.
"Buyer interest, including from existing tenants, has been strong," Peakstone CEO Mike Escalante told analysts this month, adding that the "disciplined office sales" have been critical to the company's ability to pay down debt and strengthen its balance sheet.
The REIT is expecting to sell "a majority" of those properties before the end of the year, Escalante said, an effort expected to generate another roughly $300 million in proceeds.
Where Peakstone is racing toward the exit sign, buyers such as Montana see the deals as a discounted entry point timed to capitalize on the office market's gradual recovery.
The national vacancy rate of about 14% has largely hit its peak, according to CoStar research. While U.S. office leasing has yet to fully recover to pre-pandemic levels, the 12 million square feet of deals signed in the third quarter is the most since 2019.
As companies continue to sign on for more and larger deals, the pool of interested buyers — especially for properties in the best locations with the strongest tenant lineups — has become increasingly competitive.
Major REITs such as Highwoods, Cousins Properties, Kilroy Realty, BXP and Hudson Pacific Properties have become increasingly vocal about their plans to capitalize on the upswing — either by taking advantage of rising valuations to sell off some buildings or to scout for chances to purchase attractive ones.
That interest is expected to translate into higher prices and a flood of dealmaking, both of which could help bolster Peakstone's efforts as it looks to position its portfolio elsewhere.