Immediately north of The Bartlett, across 12th Street South, is the 10-acre PenPlace. The Residence Inn is at the top left.

[Seneca Note: Seneca Group assisted throughout the transaction, leading the due diligence process.] Inc. (NASDAQ: AMZN) has purchased the Residence Inn by Marriott in Pentagon City with plans to demolish it and expand its second headquarters, the company tells the Washington Business Journal.

Acorn Development LLC, an Amazon subsidiary, paid $148.5 million for the building and its 1.5-acre site at 550 Army Navy Drive from an affiliate of the Blackstone Group LP, according to county records. The Sept. 17 acquisition means that Amazon now controls the entire, 11.6-acre square block bounded by Army Navy Drive, South Fern Street, 12th Street South and South Eads Street, also known as PenPlace.

The hotel appears to have closed. It has been removed from all Marriott websites.

PenPlace — Arlington County’s largest undeveloped lot — has long been planned as the second phase of Amazon’s HQ2 build-out. The first, 2.1 million-square-foot phase is well under construction immediately to the south in Metropolitan Park.

Amazon’s plan for PenPlace would have worked with the hotel there, a company spokesperson said. But it became clear that if it could just remove the building, Amazon would be able to create a “more robust” and “cohesive urban plan” with improved pedestrian circulation and more open space, the spokesperson said. Amazon will likely submit its vision for PenPlace in 2021.

A map of HQ2’s two phases, with Metropolitan Park to the south (phase 1) and PenPlace to the north (phase 2). This map was made before Amazon acquired the Residence Inn, which accounts for that square bite in the top left corner of PenPlace. [Map Creator/ WBJ]

There’s no telling what Amazon can do with this much land. Working with even less space, Amazon’s Seattle offices feature the Spheres, three massive glass domes that serve as greenhouses and communal space. Its officials have previously hinted that PenPlace would allow for more experimental open space concepts.

Amazon’s arrival into the region was supposed to spur more hotel night stays in Crystal City and Pentagon City. But the coronavirus pandemic has drastically slowed tourism and business travel in Arlington, turning profitable hotels into ghost towns.

The offer from Amazon might have been too good for Blackstone to pass up. The global investment giant acquired the Residence Inn for $99.1 million in July 2019, and made off with just shy of $50 million profit with the sale. Frank Cohen, chairman and CEO of the firm’s non-traded real estate investment trust, said in a statement, “This sale illustrates our ability to generate value for our investors by identifying attractive real estate assets in desirable locations. We will continue to invest in assets where we have high conviction and selectively sell where we see compelling pricing.”

The larger section of PenPlace is still owned by JBG Smith Properties (NYSE: JBGS), Amazon’s development partner and Crystal City landlord, but Amazon has a deal to buy it eventually — after a site plan is approved by Arlington County. Their agreement calls for Amazon to pay about $72 per square foot of density and the previous vision for PenPlace, before the hotel buy, called for about 2.08 million square feet there.

Amazon bought the Metropolitan Park site in January from JBG Smith for just under $155 million. The two, 22-story office towers plus retail there are expected to deliver by 2023. The first of the tower cranes was assembled in the last week, with four more to come.

In the meantime, HQ2 is contained within a series of Crystal City office spaces. Though Amazon employees are largely working remotely until January, the company has still taken control of about 40% of the 857,000 square feet it agreed to lease from JBG Smith.

In return for cash incentives and a host of other benefits, Amazon has agreed to hire 25,000 employees for HQ2 by 2030 — and potentially 12,000 more by 2035. At last count, Amazon had more than 1,000 HQ2 employees.

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