Government-Sustained D.C. Office Market Attracts Bevy of Bidders for Fully Leased Building

Regions Apr 30, 2009

The Washington, D.C., office market, has taken its blows like every other city, but with the federal government’s consistent need to house employees, office buildings that are fully leased by the feds are hot property. With solid demographics in play, a slew of hopeful buyers came out to look at the 228,000-square-foot One Choke Cherry office property (pictured) in Rockville, Md., and The JBG Cos. came through with the winning bid of $43.5 million.For JBG, the transaction marks a return to familiar ground, as the Chevy Chase, Md.-based company, which also owns Five Choke Cherry, previously owned One Choke Cherry until it sold the property for $55 million in 2005. Located about 25 miles from D.C., in the I-270 Corridor minutes from the Capital Beltway, One Choke Cherry is the centerpiece of the future Upper Rock District mixed-use community. The U.S. Department of Health and Human Services’ Substance Abuse and Mental Health Services Association is the sole occupant of the five-year-old property, holding a lease that is scheduled to expire in August 2014. According to real estate services firm Cassidy & Pinkard Colliers, which marketed the property and represented the seller in the transaction, the in-place rents are 50 percent below market rate, thereby offering an opportunity for significant income-growth upon the anticipated renewal five years from now. The average occupancy level in Metropolitan Washington, D.C., is not nearly as high as it was two or so years ago, so a fully leased office building with a credit-worthy tenant is highly coveted. “D.C. is in a bit of a lull right now, before the stimulus package starts to take effect,” Paul Collins, senior managing director with Cassidy & Pinkard, told CPN. “Once stimulus funds come into the market and the private sector starts hiring, we will start to see a lot of leasing activity.” Collins said the job growth will likely begin by mid-2010, and continue for about 18 months after that. But even now, the market is still desirable, particularly to investors that can still manage to secure funds despite the inhospitable lending climate. “There’s definitely money out there for buying, but there still is not a lot of credit,” Collins noted. “There’s enough equity out there chasing deals, we just need a little more debt.”