Easterly Government Properties CEO 'Aggressively Looking' To Buy Nonfederal Buildings

Easterly Government Properties is working to shift its portfolio away from its heavy reliance on the federal government — but not because of President Donald Trump. 

The company, which owns 9.7M SF of properties, first told investors in early 2024 it intends to diversify its portfolio away from the federal tenants that have filled its buildings since its 2009 founding. It is looking to reduce its federal exposure from 95% to 70% of its portfolio while increasing the share of state and local government tenants to 15% and private-sector tenants to 15%. 

“Today, we are aggressively looking for government-adjacent buildings that look like the federal buildings that we already own,” Easterly Government Properties CEO Darrell Crate told Bisnow in an interview.

The diversification is an attempt to accelerate income growth and make the REIT's portfolio more attractive to stock market investors, Crate said. 

“By adding state and local as well as these government-adjacent firms, you can get leases that are more traditionally structured, that have [rent] bumps that happen either every year or every five years, which provides better clarity on portfolio growth to our equity investors,” Crate said. 

Easterly’s stock price, trading under the ticker DEA, has fallen 28% over the last six months compared to a 1.3% drop in the S&P 500 and a 6.6% decline in Nareit’s REIT index. 

Crate attributes this drop to “confusion in the market on what DOGE means for federal leases.”

Easterly has yet to report any impact from the Trump administration’s Department of Government Efficiency to its portfolio. It owns what it calls “mission-critical” facilities for the federal government — single-tenant facilities for agencies like the Federal Bureau of Investigation, Department of Veterans Affairs, Immigration and Customs Enforcement, the Food and Drug Administration and the Drug Enforcement Administration. 

And these facilities are typically field offices in markets outside of the nation’s capital. 

“We own no federal office space in D.C.,” Crate said. 

KBRA’s 2024 Surveillance Report on Easterly said the credit rating agency has “corroborated” the mission-critical nature of its facilities through tours and discussions with property management. 

BMO Capital Markets Managing Director John Kim, an analyst who covers the REIT, told Bisnow that the diversification away from its original strategy is smart.

“I think it's a welcome move,” he said. “It just provides a more organic growth, or in this case, attractive pricing for the company.”

Though none of Easterly’s federal leases have been cut so far, it’s not out of the woods yet.

DOGE has had a chaotic first five months on the federal office leasing front — it previously claimed to have terminated 748 leases before walking back more than half of those. Billionaire Elon Musk has departed from his role leading DOGE, but the agency is continuing to operate, and Trump requested $45M in his Fiscal Year 2026 budget to fund the agency and support 150 employees. 

“We still want to see how the next few months play out, because I think the office cost-cutting from the government is still happening,” Kim said. “But so far, it’s been encouraging that they haven’t been impacted.”

Over the past year, Easterly has begun moving the needle on its shift away from federal government exposure.

At the end of March 2024, 97.4% of the REIT’s annualized income came from federal tenants, 1.1% came from local and state government tenants, and 2.5% came from private-sector tenants. 

A year later, its federal government tenants made up 93.4% of its income, state and local governments made up 3.2% and private tenants made up 3.4%.

As for the square-footage breakdown of its tenants, an Easterly spokesperson told Bisnow that as of March it was 91% federal agencies, 4% state and local governments and 5% government-adjacent private tenants.

Crate said the initial intent was to get to the target breakdowns in a three-year timeframe but said he would “love for it to be faster.”

Easterly is conducting this pivot both through acquisitions and dispositions. 

Crate said the company is “exploring all avenues with being able to sell portions of our federal portfolio to raise money or raise the dollars in the equity market.”

“We look at our current portfolios as a cash resource that can help us navigate the shift in our portfolio over time,” he said.

On the buying side, the REIT purchased a 290K SF building in Washington, D.C., in April that is fully leased to the local government through 2038.

Also last quarter, the company proactively signed a 10-year, noncancelable lease with the state of New Mexico for an Albuquerque facility that the U.S. Forest Service occupied before it consolidated into another building.

“We were reading headlines, and this is back in sort of the early times of DOGE uncertainty, and we knew that was a place where there may be some consolidation,” Crate said on the earnings call. “We ended up creating … some alternatives to working with the Forestry Service.

“It seems like a better portfolio decision for us. So lower volatility in the future, more certainty. And we've got some nice [operating expense] bumps in that lease that will make it a little more attractive than a traditional federal lease,” he added.

That came after Easterly acquired a 295K SF campus in December primarily leased to Wake County, North Carolina’s public school system through June 2034. 

Crate said the company is targeting “high-credit quality” local governments and, within them, mission-critical agencies.

On the private side, Easterly acquired two leases with defense contractor Northrop Grumman last fall. It purchased a 99K SF facility near Dayton, Ohio, leased to the company through August 2029 and a 104K SF facility in Aurora, Colorado, leased to Northrop through February 2032.

“We're working hard today to opportunistically find the right assets to build our portfolio towards our strategic objectives, and we'll do that in a very prudent way, but also we are 100% focused on making that happen sooner rather than later,” Crate said.

CORRECTION, JUNE 4, 1:55 P.M. ET: A previous version of this story misstated the square footage breakdown of the REIT's portfolio. This story has been updated.