American Real Estate Partners Plans Virginia Apartment Conversion

MNH

By Gail Kalinoski

September 13, 2022 | The firm will redevelop an office property in Alexandria into nearly 200 apartments.

A seven-story, 200,000-square-foot office condominium at 1101 King St. in Alexandria, Va., has been acquired by American Real Estate Partners and will be redeveloped as a mixed-use building with approximately 200 apartments and 17,500 square feet of retail.

The investment was the fifth made through AREP’s Strategic Opportunity Fund III, which is now 60 percent deployed. In June, AREP announced the closing of the fund with $63 million in equity commitments, expanding on the diverse mix of public and private institutional investors and family offices. Fund III’s co-investment capital is targeted to invest in $1.5 billion to $2 billion of asset value, utilizing moderate financial leverage.

The acquisition included the simultaneous purchase of all the condominium units in the office building from seven owners. The total purchase price and estimated cost of redevelopment were not disclosed.

Cooper Carry will lead the project redevelopment design and residential hospitality design team RD Jones will handle interiors. Construction is set to begin in July 2023. An estimated completion date was not announced. AREP will maintain the ground-floor retail leases, including OrangeTheory Fitness and Paris Baguette, throughout the construction process.

Doug Fleit, co-founder & CEO of AREP, said in a prepared statement the asset, located in the heart of Old Town Alexandria and the bustling King Street retail and restaurant corridor, is an example of AREP’s strategy of looking for special properties in vibrant and emerging locations that can be repurposed for residential use.

Brian Katz, co-founder & president of AREP, stated in prepared remarks the office-to-multifamily conversion acquisition is one of the firm’s core investment strategies and reinforces the company’s ability to identify strong investments across diversified product types and markets to deliver value.

Commercial-to-residential conversions is a growing trend across the country. More than 20,000 units in older buildings that previously served other purposes were completed last year. It nearly doubles the number of conversions completed in 2019 and 2020 combined, according to RentCafe. In one of the most recent examples, Vanbarton Group secured $272.5 million in construction financing for the firm to convert 160 Water St., a 24-story office building in Manhattan’s Financial District into a 30-story residential building with 588 market-rate units.

The King Street office building was constructed in 1985 and renovated in 2017. Fleit noted the asset rises four stories above the buildings around it with views of the city. He said the balconies on each level are more like terraces, with many 10 to 20 feet in depth. When the redevelopment is completed, the property will have a club room, a fitness center, a rooftop social terrace with views of Old Town and hospitality concierge services. With the post-Covid shift to flexible work schedules, AREP will include shared hybrid workspaces in the building. The redesigned 1101 King St. will feature larger-than-average units that enable indoor and outdoor living, incorporating terraces and in-home workspaces.

Access to live entertainment and waterfront park activities are just steps from the property. Old Town has more than 200 shops and restaurants as well as museums. The King Street Metro station is a 10-minute walk from the building and three stops to Amazon HQ2 at National Landing in Arlington. Alexandria is about 8 miles south of Washington, D.C. Residents of 1101 King St. will also have easy access to interstates 495 and 395, and routes 7 and 1. Reagan National Airport is a 5-mile drive or a short Metro ride away.