Health Insurer Downsizes D.C. Office By 140K SF With New Lease
A major office tenant in D.C.'s NoMa neighborhood shrank its footprint to less than one-third of its prior size, contributing to the trend of occupancy losses in the market.
Health insurance provider CareFirst BlueCross BlueShield signed a 62K SF lease renewal at 840 First St. NE, downsizing its footprint in the building by 140K SF, according to new quarterly market reports from CBRE and JLL.
OPI's Christopher Bilotto said on the call that after the quarter ended, it signed a lease extension in D.C. with a tenant that represented 2.1% of its total annualized revenue, which its financial supplement indicates is CareFirst. Bilotto said the tenant downsized its footprint, but the REIT had previously thought it would fully vacate the building.
OPI attempted a merger with Diversified Healthcare Trust earlier this year, seen by many as a bailout for OPI, which has suffered lately with a portfolio concentrated in the troubled office sector. But that merger fell apart earlier this month after a contingent of DHC investors led an opposition campaign.
The building was developed by Greenebaum Enterprises in 2002 as a build-to-suit project for CareFirst BlueCross BlueShield. The company signed a lease extension in 2011 for 10 years, the landlord announced at the time. Its name is still featured prominently on the building's façade.
Greenebaum sold the building in 2003 for $68M to The Stephen A. Goldberg Co., which then sold it in 2011 to First Potomac Realty Trust for $90M, deed records show. First Potomac was acquired in 2017 by Government Properties Income Trust, which later merged with Select Income REIT to form OPI.
The landlord now has a big chunk of vacant space to fill in the building, and it is far from alone in the D.C. market. The city's vacancy rate sits at 19.1%, and it recorded 416K SF of negative net absorption in the third quarter, according to JLL's report.
"Really what's driving the net absorption loss overall is large contractions of space as tenants move into smaller footprints, so for instance, CareFirst BlueCross BlueShield shed 140K SF," JLL Mid-Atlantic Research Director Michael Hartnett told Bisnow Wednesday.
The effort to backfill the First Street building may be aided by its location one block from Union Station and on the southern edge of the NoMa neighborhood. NoMa has one of the lowest vacancy rates in the city at 10.7%, according to JLL, and its large supply of multifamily buildings has helped it benefit from the trend of office tenants favoring mixed-use neighborhoods.
Emily Wishingrad contributed reporting for this story.