First Potomac, Perseus Purchase D.C. Bus-Terminal Site for $46.8M Office Project

August 8, 2011
By Barbra Murray, Contributing Editor

Taking a big step forward in their plans to develop a premier office complex in Washington, D.C., First Potomac Realty Trust and Perseus Realty L.L.C. have purchased the 1.6-acre Greyhound Bus Terminal site from Greyhound’s parent company, FirstGroup PLC, for approximately $46.8 million. The land can accommodate as much as 712,000 square feet of space and, while plans are yet to develop, an office building is planned for the site.

The transaction was actually a sale-leaseback deal of the last available spot in the district. Greyhound will stay put at the 71,000-square-foot terminal, located at 1005 First St. in the blossoming NoMa district in the city’s northeast quadrant, under a triple-net lease for as long as 10 years. The length of the bus company’s occupancy could change, given that the agreement allows for the termination of rights after the second year. First Potomac and Greyhound would make such a decision together. “What we like about this project is that we are going to receive income,” Ernie Jarvis, senior vice president with First Potomac, told Commercial Property Executive. “We’re going to lease it back. It’s going to be strong cash flow and income, so that’s what we found very attractive.”

As per terms of the transaction, First Potomac and Perseus forked over just $38.4 million of the total cost at the closing; they have two years to pony up the remaining $8.4 million. The partners contributed a respective 97 percent and 3 percent of the equity necessary to acquire the property.

Plans for the office project are in the early stages. If the Washington, D.C., market continues its status as one of the strongest office markets in the country, demand for a large amount of spec space may exist once the project gets underway. Net absorption in the District declined in the second quarter but it was still positive at 164,200 square feet, according to a second-quarter report by commercial real estate services firm Cassidy Turley. The average vacancy rate was 10.3 percent. The federal government, as is always the case in the office market in the nation’s capital, will play a large role in determining demand for the project.

“Government tenancy is one of the drivers of our market,” Jarvis said. “It has a ubiquitous presence here. And what we like about the Greyhound location is that agencies want to be closer to Capitol Hill, their funding source. It’s not only the agencies from Northern Virginia, there are government agencies around the country that may decide they need to be closer to the capital so they can run up to Capitol Hill. So we don’t think it will just be a regional attractiveness.”

The NoMa area, in particular, will be of great interest to both government agencies and other businesses, First Potomac and Perseus believe. “One of the things that we are very bullish about in the NoMa market, is that in the past couple of years, it’s been considered an emerging market, but we think NoMa has matured and has emerged,” Jarvis said. “You have transportation and amenities in the NoMa submarket that are comparable to the central business district, but the pricing for leased space in this particular market is considerably less.”

Given the open terms of the leaseback arrangement with Greyhound, the fact that First Potomac and Perseus will be playing it by ear when it comes to construction at the site is of no concern to either partner. “The metrics in Washington, D.C., are still very solid and for the period of the leaseback, we only think that will continue to be the case,” Jarvis said.