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WASHINGTON, DC-First Potomac Realty Trust has added two properties to its portfolio, bringing its holdings to 10 million sf. The acquisitions--two separate transactions that totaled $28.9 million--were both off-market, value-add deals with local investors in the DC market, Nicholas R. Smith, First Potomac's chief investment officer, tells GlobeSt.com. "They are both well located and their long-term prospects are very good."
One, Indian Creek Court, is a four-building, 186,691-sf flex property in Beltsville, MD that is 84% leased to seven tenants. The purchase was funded with $10.7 million in cash and the assumption of a $12.8-million loan that matures in 2011 and bears interest at a fixed rate of 7.8%. The property is expected to generate a first-year unleveraged return of approximately 8% on a cash basis and approximately 8.1% on an accrual basis.
The second transaction, a 52,581-sf flex property in Sterling, VA, is located in the Sterling Park Business Center next to other First Potomac properties. It is currently 86% leased to six tenants. The property was acquired for $5.4 million in cash and is expected to generate a first-year unleveraged return of approximately 7.1% on a cash basis and approximately 7.5% on an accrual basis.
In general, Smith says the Washington, DC-area flex/industrial market is well positioned for growth, despite flat or declining growth projections by some analysts. "I think [rental] rates will continue to increase in the foreseeable future."
Most of the product being built in Washington, DC is office, he notes, which leaves little room for competing industrial/flex projects. Also, office space in the metro area has become very expensive--averaging, for example, in the mid $30s per sf in the Dulles Corridor--compared to flex space, which averages in the low to mid teens, he says. This cost structure has pushed many firms that might have considered class B office space to look at flex space. "It is a cheaper and more flexible alternative for a lot of firms--an affordable Plan B," Smith says.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
