AREA sells DC government-leased office

As demand for GSA-leased properties in Washington DC and beyond continues to rise, AREA sells a 130,000 sq. ft office at 500 First Street NW for $68m to REIT First Potomac. The office was bought for $45m in 2008 in JV with Van Ness.

AREA Property Partners has sold a 130,000-square-foot government leased office in Washington DC to US REIT First Potomac Realty for $68 million.

The New York-based private equity real estate firm acquired the office – loctaed at 500 First Street NW and leased to the US Federal Bureau of Prisons until 2016 – in May 2008 for $44.9 million in a joint venture with Van Ness Property Group, an affiliate of the property management group, Polinger Company.

The firms had almost completed a full-building renovation at the time of the sale, the costs of which were included in the purchase price.

AREA said in a statement the acquisition was made through its Value Enhancement Fund VII, which closed on $758 million in 2008. The VEF series of funds was bought by AREA in 2004 from Millers Point, Australia-based property company Lend Lease.

First Potomac added in a separate statement that the unlevered return on the property would be 7.5 percent after its renovation, with the possibility of developing an extra 30,000-square-feet of office space. First Potomac secured a 10-year, 5.7 percent, $39 million loan to finance the asset.

Appetite for government-leased offices in Washington DC and major US markets has increased markedly over the past year, with expectations of that government departments will continue to grow in the coming years helping drive demand for office space and other real estate sectors.

Earlier this month, Investcorp Real Estate sold the first mortgage on the $169 million US coast guard headquarters in Washington DC, 15 months after acquiring it. The senior note, which had a face value of $100 million and was reportedly bought by Investcorp for around 75 to 80 cents on the dollar, was secured against 2100 2nd Street and sold to Talos Capital.

And last month, StonebridgeCarras and Walton Street Capital sold part a 589,000-square-foot office in their seven-acre Constitution Square redevelopment project to US insurance firm, Northwestern Mutual. The entire property was leased to the US’ Department of Justice.