First Potomac Snaps Up D.C. Office Building

The firm picked up 840 First St., a 248,600-square-foot fully occupied property, from the Stephen A. Goldberg Co. for $90 million.

March 30, 2011
By Barbra Murray, Contributing Editor

First Potomac Realty Trust has the funds to grab office assets in its core market of metropolitan Washington, D.C., and despite the increasingly heated contest among investors to acquire in the highly desirable location, the REIT continues to fill its portfolio. Its latest purchase is 840 First St., a 248,600-square-foot fully occupied property that the company picked up from the Stephen A. Goldberg Co. for $90 million in an off-market transaction.

Relying on its local market expertise and long-standing relationships, First Potomac had the inside track–as it often does with its acquisitions–on 840 First’s availability. But when it comes to buyers seeking marketed assets, more and more investors are popping up in the bidding process. “There’s a lot more competition than there was a year, year-and-a-half ago when we were in the great depression,” Nicholas R. Smith, chief investment officer of First Potomac Realty, told CPE. “A lot of people see Washington, D.C., as a good place to invest money and they see stability and opportunity. Generally speaking, Washington has not seen much building over the last few years and demand has been increasing as we come out of the downturn, and we see the opportunity for an increase in rents.”

Located across from Union Station in the District’s blossoming NoMa submarket, 840 First is a 12-story structure that made its debut in 2003. In addition to Class A office space, the property features a cafeteria and an underground parking facility that can accommodate 222 vehicles. Health care insurer Group Hospitalization and Medical Services Inc. has called the building home since it first opened its doors.

The acquisition of 840 First is just one of a few First Potomac has made this year. Last month the company spent $33.8 million to snap up the 102,600 square-foot Merrill Lynch Building in Columbia, Md., and Cedar Hill I and III, two buildings accounting for an aggregate 137,700 square feet of space in Tysons Corner, Va. In January, the REIT acquired the 105,000 square-foot property at 440 First St. for $15.3 million.

First Potomac’s purchase of 840 First was not the traditional acquisition deal. “We swapped out equity for shares in Potomac stock to accommodate the seller’s tax deferral needs; they’re taking advantage of the UPREIT structure to defer taxation,” Smith said. “We’re one of the few companies in Washington that can do it. We can offer stock instead of cash.” Another unique feature of the transaction is First Potomac’s commitment to enhance the payment for the property by as much as $10 million if the seller strikes a new lease agreement with current tenant Group Hospitalization, whose lease expires in two years. “These are some of the things we do to separate ourselves from other investors. We do things a little more creatively.”