First Potomac Starts Selling its Suburban Portfolio

By Gail Kalinoski, Contributing Editor

First Potomac Realty Trust, which announced earlier this year that it planned to sell at least $200 million in assets, made two deals within a week, selling off three Virginia office and business park properties for about $60 million.

The most recent announcement came when the Bethesda, Md.-based REIT reported the sale of Cedar Hill I and III located in Tyson’s Corner, Va., for gross proceeds of $27.3 million. The two, three-story office buildings totaled 102,632 square feet and were fully leased.

The REIT, which is a leading owner and operator of office and business park properties in the greater Washington, D.C., region, declined to identify the buyer or buyers. Jones Lang LaSalle represented First Potomac in the transaction.

“As we continue to execute on phase one of our strategic plan to improve our portfolio and strengthen our balance sheet, the sale of Cedar Hill I and III, and the redemption of a portion of our preferred shares, reinforces our effort to create substantial value for our shareholders,” Robert Milkovich, CEO, said in a prepared statement.

A week earlier, First Potomac reported it had sold Newington Business Park Center in Lorton, Va., for gross proceeds of $32.5 million to an affiliate of Velsor Properties L.L.C. The seven-building industrial property contains a total of 256,000 square feet and is 83.3 percent occupied.

HFF represented First Potomac in the deal. In September, First Potomac hired HFF to market Newington Business Park Center and eight other Northern Virginia assets totaling about 1.2 million square feet. The REIT said then it hoped to sell those properties and other non-core assets by the end of 2015 or early 2016.

At that time, First Potomac also engaged Sage Capital Advisors to seek parties interested in the REIT’s majority ownership interest in Storey Park, a site in the NoMa submarket in Washington, D.C., that could accommodate up to 712,000 square feet of mixed-use development.

The company plans to use proceeds of the sale of assets like Cedar Hill I and III and Newington Business Park Center to fund the redemption of a 2.2 million preferred share redemption scheduled for Jan. 19. The redemption of a portion of the company’s preferred shares is part of the ongoing plan to de-risk the portfolio, strengthen its balance sheet and reduce corporate overhead.

“We are continuing to execute on phase one of our strategic plan and look forward to announcing the sale of additional assets in the weeks and months ahead. We are on track to dispose of at least $200 million of assets, and we remain confident that we are taking the right steps to improve performance and create substantial value for our shareholders,” Milkovich said on Dec. 21, when the Newington Business Park Center deal was announced.

The moves come during a tumultuous few months for the REIT that saw its CEO Doug Donatelli and Chief Investment Officer Nicholas Smith both resign suddenly in November. Milkovich, who had been the president of Spaulding & Slye Investments until joining First Potomac as Chief Operating Officer in June 2014, was named CEO after Donatelli left. Both Donatelli and Smith had been founders of the REIT, which was formed in 1997.