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January 12, 2011  

Vanguard Realty Group brings over 30 years of expertise to handle your CRE needs. See the ad at right or go here for more info.

Maybe we do our best in the snow. We've got not one but two exclusives for you today. First...
Will Stern, Phillip Thomas, Jonathan Yormak, and Bobby Schwartz in Cassidy Turley's DC office in January 2011

Yesterday afternoon, Cassidy Turley’s Bobby Schwartz (right) told us JPMorgan (repped by Newmark Knight Frank’s Bill Zonghetti and Larry Bank) has leased the 7th floor (17k SF) in Pennsylvania Plaza at 601 Pennsylvania Ave. N. Ahead of the deal, we snapped Jonathan Yormak, principal of landlord Ruben Cos. (in the suit) when he visited Cassidy Turley’s Will Stern, Phillip Thomas, and Bobby. They’re currently leasing the former Alston + Bird space (75k SF), and Bobby tells us his team is close to signing a Fortune 50 tenant for the eighth floor and there’s activity on the remaining ninth through 12th floors. All this on the heels of 3.8M SF of District office absorption in 2010, the second highest volume ever. 800k SF of that came from the private sector, pretty impressive considering 2009’s combined public and private absorption was just a couple hundred thousand SF.

Rand Construction Mini
Pennsylvania Plaza, 601 Pennsylvania Ave. N, DC

The other big news for Pennsylvania Plaza: Chef Fabio Trabocchi (Tysons Corner’s Maestro and NY’s Fiamma) has signed ground-floor space and will open Fiola by Fabio Trabocchi in April. Rappaport's Mike Howard repped Ruben in that deal. The Italian menu will have fresh local ingredients that change seasonally. And of course there's the power lunch necessity: a lounge/cocktail bar.



Metropolitan at Pentagon City

We snapped Metropolitan at Pentagon City, for which Invesco just closed on $60M of acquisition financing (Cornerstone Real Estate Advisers and Kettler are the sellers). HFF’s Dan McIntyre, Bob Donhauser and Bill Asbill arranged the funds (from a life company) for the 325-apartment luxury tower on 15th Street in Arlington. It’s a seven-year, IO loan at 50% LTV.

Metro Pike Center in Rockville, MD

Last night, HFF also announced that Steve Conley, Jim Meisel, and Dek Potts repped Holladay Corp. in its sale of Rockville’s 64k SF Metro Pike Center, above, to Saul Centers for $33.35M and assumption of $16M in debt. (Save trips: Drop off your drycleaning, order a pizza, get your teeth cleaned and nails done, and shop for a wedding dress.) It’s 87% leased, and the site has capacity for 807k SF. Jim and Dek also completed the off-market sale of the 40k SF 7220 Wisconsin Ave. in Bethesda from Stephen A. Goldberg Co. to JBG (which owns the adjacent property and some others nearby) for $15M. It’s 95% leased, half of it by BB&T through 2016.




IPOs may be the media darlings, but secondary offerings are what's fueling REITs' compounding spending power. First Potomac raised $170M in November and is at it again, this time with its first preferred-share offering (Wells Fargo is sole bookrunner), Barry Bass told us this morning. (We can't help but wonder if that's a bobblehead of himself on his desk.) The news that another source of capital was in the works made the REIT one of the few with a stock price uptick yesterday, from $16.12 to $16.33. It’ll use the proceeds to repay some of the balance on its credit facility, to buy properties, and to fund the broad categories of “working capital” and “general corporate purposes.” In advance of the offering, on Monday First Potomac announced it had acquired the 296k SF 7458 Candlewood Rd. warehouse near BWI on Dec. 29 (while visions of champagne toasts danced in the rest of our heads). It paid $22.6M, assuming $14.7M in debt and putting the rest on credit.

Brad Case in NAREIT's DC office on Jan. 11, 2011

Last night, we spoke with NAREIT economist Brad Case, who tells us 2008 had 60 secondary offerings of common shares for $11.1B. Those figures leapt to 91 offerings and $23.6B in 2010. (Secondary offerings of preferred shares like First Potomac’s current one numbered 17 and raised $2.6B in 2010.) What the lurch in secondary offerings means is REITs are making use of their competitive advantage, liquidity. Proceeds from early offerings often go toward paying off debt and strengthening balance sheets. Then come acquisitions. There was a lull in secondary offerings in spring ’09, but they've picked back up as more distressed properties (read: return-producing acquisition opportunities) have hit the market.

Charles Darwin

No, Doug Donatelli hasn't aged 50 years in anxious anticipation of how much capital First Potomac will raise (though that announcement will come today). It's Charles Darwin, whose theory holds the key to when REITs will lose steam. As weaker private investment managers are weeded out, the herd will strengthen and produce better returns, Brad says. That’s when private capital will return en masse to balance the capital scale between debt and equity. But REITs will still be top seed for at least five more years because any 10-year mortgages originated in ’07 that have gone bad won’t to come to market until 2017. He reminds us that the typical CRE cycle is 18 years. We’ve had two years of downturn and 18 months of upturn. That means the industry will be looking up (with a few blips, of course) for another 14 and a half years.



1140 Connecticut Ave. NW, DC

This morning, Washington Real Estate Investment Trust's Tom Regnell told us it's acquired the 12-story, 184k SF 1140 Connecticut Ave. NW, above, for $80.25M. It plans common-area renovations on the 99% leased building (25 office tenants and four retail, including DC Improv). WRIT also expects to close on the eight-story, 130,400 SF 1227 25th St. NW for $47M within 90 days. This one is 72% leased to a few law firms and the Social Security Administration, so there's 37k SF of lease-up opportunity (the space was vacated by BNA a few years back). Plus it's next door to the REIT's fully occupied 2445 M. And between the two, there's a plaza that overlooks the Fairmount Hotel's restaurant (no brick-wall-alley view here, Tom says). WRIT says both acquisition prices are below replacement cost and have room for rental-rate growth. The buildings were owned by Vornado/Charles E. Smith.




The Fairfax County EDA has moved its European office from Frankfurt, where it’s been since 2000, to Munich. The city’s emerging tech market aligns with Fairfax’s marketing emphasis on business and technology. Continental Europe has 125 companies operating in the county (Siemens, Volkswagen, Airbus, etc.). The EDA also has offices in Bangalore, London, Seoul, and Tel Aviv. (Perhaps Bisnow should plan an office tour.)

The rest of the country's gone soft with this snow stuff, right? E-mail amanda.metcalf@bisnow.com.
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