450 h street | nw€¦ · vehicular access, i-395 interchange is two blocks east of the property....
TRANSCRIPT
4 5 0 H S T R E E T | N WW A S H I N G T O N , D C
Deal Contacts
GERALD P. TRAINOR Executive Managing Director
JAMES V. CARDELLICCHIOManaging Director
ROBERT J. FILLEYSenior Director202.775.7045
1667 K STREET, NW | SUITE 300WASHINGTON, DC | 20006
p 202.775.7000 | f 202.296.2647www.transwestern-icg.net
TABLE OF CONTENTS Executive Summary
Executive Overview ............................................................................................................................... 1Summary of Terms .................................................................................................................................3
Property Description Building Specifications ......................................................................................................................... 7 Location Map ........................................................................................................................................ 10 Metrorail System Map .......................................................................................................................... 11 Site Plan................................................................................................................................................. 12 Floor Plans............................................................................................................................................. 13
Area Overview Metropolitan Washington, DC Economic Overview ........................................................................... 17
Market Analysis Metropolitan Washington, DC Office Market ..................................................................................... 29 Washington, DC Office Market ............................................................................................................ 35 East End Office Submarket .................................................................................................................. 39 Comparable Sale Location Map .......................................................................................................... 43 Comparable Sale Survey ...................................................................................................................... 44
Tenancy Stacking Plan ......................................................................................................................................... 49 Tenant Rights & Encumbrance Schedule ............................................................................................ 50 Tenant Descriptions .............................................................................................................................. 51 Rent Roll Summary ................................................................................................................................ 52
Financial Analysis Cash Flow Projection ............................................................................................................................ 55 Argus Assumptions ............................................................................................................................... 56
Appendix Exhibit A: Loan Summary ..................................................................................................................... 63 Exhibit B: Lease Abstracts ................................................................................................................... 64 Exhibit C: BOMA Measurements ......................................................................................................... 66 Exhibit D: Real Estate Tax Assessment & Account Summary ............................................................. 67 Exhibit E: Argus Model ........................................................................................................................ On disc
450 H Street
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SECTION I
Executive Summary
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ExECUTIVE OVERVIEW
The Offering
The Institutional Commercial Group of Transwestern is pleased to present this opportunity to purchase a 100% fee simple interest in 450 H Street, NW (the “Property”). This fully leased Class “B” office building measures 31,338 square feet and is located on H Street between 4th and 5th Streets, NW. The Property is in the heart of Washington, DC’s East End submarket enjoying close proximity to the Verizon Center sports complex, the shops at Gallery Place and the cultural environment of the Chinatown District. This prime location is easily accessible by METRO Rail, two blocks to three rail lines, and vehicular access, I-395 interchange is two blocks east of the Property.
This free-standing ten-story office building is 100% leased and occupied. The Property’s anchor tenant is The District of Columbia (“DC Government”) who occupies 80% of the Property until 2012. The remaining 20% is also leased until 2012 and is occupied by a private-sector organization the holds a contract with the anchor tenant.
YEAR BUILT 1986
OCCUPANCY 100 %
NET RENTABLE AREA 31,338 SQUARE FEET
STORIES 10
The Property enjoys a stable cash flow and is ideally suited for the existing tenancy; a renewal in 2012 is highly likely. In the unlikely event that the tenant does not renew, the Property is ideally suited for a user or condo conversion.
PROJECTED NET OPERATING INCOME (YEAR 1)
EFFECTIVE GROSS INCOME $1,431,632 $45.68
OPERATING & TAx ExPENSES $483,519 $15.43
NET OPERATING INCOME $948,113 $30.25
Investment Highlights
STABLE CASH FLOWSecure and stable cash flow until 2012•DC Government has investment grade credit (S&P A+)•
VALUE CREATIONRenewal Opportunity:•
Extend DC Government lease in 2012 9Property is ideally suited for existing tenancy 9
Re-Develop as Condo:•Small floor plates of 2,807 BOMA square feet; ideal for office 9or residential condosEach floor is separately metered for electricity and has its 9own HVAC
User Sale:•Ideal building size for an association 9Well located asset for employees 9Great signage opportunities for branding/corporate identity 9
Excellent Location:•Proximate to strong amenity base: Gallery Place, Chinatown, 9Verizon Center, Judiciary SquareProximate to METRO Rail: Two blocks to 3 of METRO’s 5 9lines (Red, Yellow, Green)
FLExIBLE DEBTInvestors may assume the in-place debt•Property can be acquired free & clear of debt, or•
ADDITIONAL INCOMELarge billboard on exterior of the Property provides additional •income
Property Highlights
FREE STANDING BUILDINGHigh glass-to-floor ratio with excellent views•Each floor individually metered for electric•Each floor has its own HVAC•
EFFICIENT FLOOR PLATESBoutique floor plates of 2,807 BOMA square feet; ideal for small •and mid-size tenantsEfficient floor plates due to off-center mechanical core•
ON-SITE PARKING: 5 below-grade parking spots
Location & Market Highlights
NEW HEART OF EAST ENDTwo blocks to I-395 providing quick access to Maryland and •Virginia.Proximate to Metro Rail (three of five rail lines):•
Gallery Place – Chinatown Station (Green, Red & Yellow 9Lines); within 2 blocksJudicial Square (Red Line); within 2 blocks 9
Prominent Neighborhood Tenants:•Immediately Adjacent is the U.S. Government Accountability 9Office (GAO) and Army Corps of Engineers (441 G Street, NW; a 1.5 million square foot building)AARP, Communications Workers of America, U.S. Attorney of 9District of Columbia, National Academy of Sciences, Cooley, Godward, Kronish, American Association for Justice and Cardwalader, Wickersham & Taft moving in the first half of 2009.
Two blocks east of the busy Gallery Place/Chinatown •Neighborhood
Array of local boutique and national retailers include Urban 9Outfitters, Bed Bath & Beyond, Ann Taylor Loft, Aveda, Lucky Strike, Clyde’s, Legal Seafoods, California Tortilla, La Tasca, Potbelly, Hooters, Washington Sports Club, as well as array of museums and numerous quality hotels
MARKET CONDITIONSEast End Vacancy Rate: 6.3% at year-end 2008; down from 6.5% •at mid-year 20082008 Rent Growth: 1.9% (city-wide average)•East End Net Absorption:•
739,000 square feet 9The highest net absorption among the other Washington, DC 9submarkets
CONTINUED DEMANDNet absorption in the East End, outpaces all other Washington, DC submarkets. Vacancy rates remain among the lowest in the nation and job growth continues which further fuels demand for office space. The Washington, DC office market is one the strongest office markets in the country. The economic engine of the Federal Government assures its continued success as the regional economies remain stable. The office market is well positioned to outpace general inflation as Washington, DC continues to be a leader in the global economic and political environments.
For the 12 months ending October 2008, 35,700 net new jobs were added, representing a 1.2% increase over the prior year, and comparing favorably to the nationwide decrease of 1.4% during the same 12 month period. Job growth is strong enough to support a healthy office market.
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SUMMARY OF TERMS
OFFERING
EXISTING LOAN
OFFERS
EARNEST MONEY DEPOSIT
PROPERTY AND MARKET TOURS
DUE DILIGENCE PERIOD
CLOSING
Transwestern has been retained to sell the fee simple interest in 450 H Street, NW, a 10-story 30,125 square foot office building situated on a 3,834 square foot lot (0.09 acres) in Washington, DC (the “Property”).
The Property has existing debt in-place that can be assumed. A summary of the existing debt is located in the Appendix.
All offers should be submitted in writing to Gerry Trainor by Friday, March 20, 2009. Offers may be returned via facsimile (202-296-2647) or by email ([email protected]).
Ownership will consider a Prospective Purchaser’s earnest money deposit when evaluating offers.
Registered and approved Prospective Purchasers are encouraged to visit the Property and should contact Jim Cardellicchio (202-775-7094) to schedule a tour of the Property and the local market prior to submittal of bids.
All offers should specify the length of time necessary to complete due diligence. The length of the Due Diligence Period will be considered when choosing a Prospective Purchaser.
All costs and expenses incurred by the Prospective Purchaser to conduct its various inspections will be the sole responsibility of the Prospective Purchaser. Both the Owner and Prospective Purchaser will cooperate with each other in their respective activities during the Due Diligence Period.
450 H Street building lobby
SECTION II
Property Description
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BUILDING SPECIFICATIONS
GENERAL SPECIFICATIONS
Property Name & Address 450 H Street, NW | Washington, DC | 20001
Year Completed 1988
Site 3,834 square feet (0.09 acres)
Building Area FLOOR IN-PLACE SQ. FTG.1 BOMA SQ. FTG.2 USE DESCRIPTION
Lower Level 1 3,246 SF 3,157 BOMA SF Office/Training Area
1 2,849 SF 2,927 BOMA SF Office areas
2-10 24,030 SF 25,254 BOMA SF Office areas
Total 30,125 SF 31,338 BOMA SF Building NRA1In-place square footage represents the sum of all the in-place leases.2BOMA square footage represents the building's area in accordance with BOMA measurements dated February 2009. (see Appendix)
Number of Floors 2-stories below grade, 10 stories above grade
Restrooms 1 men’s and 1 women’s room per floor
Zoning The Property is zoned DD/C-2-C (Medium/ High Density Development). The C-2-C zoning is designed to provide facilities for shopping and business needs, housing, and mixed use for large segments of the city outside the central core. The C-2-C district permits several types of uses, including office, retail, housing and mixed use development. The Property is also included in the Downtown Development (DD) Overlay Zone District. The DD Overlay is designed to create a balanced mixture of preferred uses, by means of incentives and requirements, including retail, hotel, residential, entertainment, arts and cultural uses.
Parking The parking garage can accommodate a maximum capacity of 4 parked vehicles. Additionally, there is ample parking in the neighboring buildings as well as the surface parking lot adjacent to the building.
CONSTRUCTION
Façade & Windows Outside walls consists of limestone panels with individual panels of approximately 24” X 24” in size. The windows and entries consist of anodized aluminum frames with double insulated glass.
Roof The roof system is a ballasted membrane roof on a concrete deck.
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BUILDING SPECIFICATIONS
Structure First floor is reinforced concrete and floors two through ten, plus the roof, have a structure consisting of a steel frame with concrete on metal deck.
Ceiling Heights FLOOR FINISHED CEILING HEIGHT SLAB-SLAB HEIGHT
Garage 7’ 5” 8’5”
Basement 7’ 7” 9’11”
1st Floor 7’ 8” 9’11”
2-10 Floors 7’ 6” 9’10”
MECHANICAL SYSTEMS
Elevators The building is served by two passenger geared traction elevators. They were manufactured and installed by Dover Elevator Company. Both elevators have a rated capacity of 3,500 pounds and a rated speed of 350 f.p.m. The elevator maintenance contract is with Otis Elevator
Electric Pepco (Potomac Electric Power Company) provides the electrical service to the Property. The voltage throughout the building is rated at 208Y/120V, 3-phase, 4-wire.
Metering There are a total of (12) twelve utility meters. Each floor has a separate utility meter.
HVAC The HVAC for this Property is achieved by York, water-cooled, air conditioning units with DX coils for cooling and electric heat. There is one of these units on each floor in a small mechanical room. Supply ductwork to VVT boxes and an above ceiling return air plenum distributes the conditioned air to the building. On each floor there are five to six VVT zone thermostats that determine whether the A/C unit on that floor is in the heating or cooling mode based on the demand of the majority of the thermostats.
Condenser water to cool the compressors in the A/C units is provided by a closed condenser water loop with the pumps in the basement and the BAC forced draft cooling tower located in the penthouse mechanical room.
Gas The Property is served by Washington Gas
Water & Sewer Washington Suburban Sanitary Commission
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BUILDING SPECIFICATIONS
FIRE/LIFE SAFETY
Fire Protection System The Property is fully protected by an automatic sprinkler system and manual pull stations are located at all exits from the Property. The fire/life safety system includes an addressable non-voice fire alarm system manufactured by Gamewell. It notifies the fire station via central station dialer panel.
Security Tenn Security
Emergency Power A 155kW/193.7kVA diesel generator is located in the parking garage. It provides power to various emergency and life safety systems including the fire pump, elevators, emergency lighting and other miscellaneous mechanical power. The generator diesel fuel tank is located on the basement level.
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LOCATION MAP
450 H STREET, NW
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METRORAIL SYSTEM MAP
450 H STREET, NW
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SITE PLAN
450 H STREET, NW
H STREET, NW
411 G STREET, NW
U.S. GOVERNMENT ACCOUNTAbILITY OFFICE (GAO)
& ARMY CORPS OF ENGINEERS
ST. MARY'S CHURCH GARDEN AREA
ST. MARY'S CHURCH
ST. MARY'S CHURCH
5T
H S
TRE
ET,
NW
PARKING LOT
Public Sidewalk Public Sidewalk Public Sidewalk
DR
IVE
WA
Y
Security Booth & Gate
Security Gate
Garage EntranceProperty Line
(same as building foot print)
1.4 million square foot building
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FLOOR PLANS
Lower Level
MECH.
MECH.
STAIR A
STAIR b
H STREET, NW
THE SEE FOREVER FOUNDATION
Garage Level
2121
K S
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H STREET
CRAWL SPACE(lobby above)
ENGINEER'SOFFICE
PARKING
ENGINEER'S OFFICE/
MECH. ROOM
R.R.
R.R.
GA
RA
GE
RO
LL-U
P
DO
OR
UP
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FLOOR PLANS
1st Floor
H STREET, NW
MECH.
1st FL. LANDING
MAIN LObbY(STREET LEVEL)
(SET DOWN FROM 1ST FL. LEVEL)
THE SEE FOREVER FOUNDATION
2nd - 10th Floor
H STREET, NW
STAIR b
JANT.
MECH.
THE DISTRICT OF COLUMbIA
STAIR A
R.R.
R.R.R.R. R.R.
bUILDING ROOF bELOW
(FLOOR 1 ROOF)
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SECTION III
Area Overview
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INTRODUCTION
The Washington, DC MSA includes the District of Columbia, 15 surrounding counties, and six independent cities in Maryland, Virginia and West Virginia with a combined population of 5.4 million (2007 est.)1.
The Washington, DC metropolitan area economy is one of the strongest in the country. When the United States economy slipped into recession in 2001 after its longest expansion phase ever, the Washington, DC area showed signs of continued strength. As of the end of October 2008, the regional unemployment rate was 4.1%, versus the national unemployment rate of 6.5%. The region’s year to date job growth for the period ending October 2008, represented a gain of 35,700 jobs, a 1.2% rise. The U.S. experienced a decrease of approximately 1.8 million jobs, a 1.4% decline, during the same period.
Even during past national recessionary periods, the Washington, DC metropolitan area has grown. The metropolitan area's Gross Regional Product (GRP) during the last four periods of national contractions has experienced positive growth ranging from 0.2% to 3.1%. In short, the metropolitan area has benefitted from government intervention during times of national crisis and as a result, it is anticipated that the metropolitan Washington, DC area will create 23,900 net new payroll jobs during 2008. Job growth is projected to continue rising modestly throughout 2009 and 2010, with 29,000 and 42,500 new jobs, respectively.
KEY WASHINGTON, DC MSA ECONOMIC INDICATORSOCTObER 2008
TOTAL EMPLOYMENT 2,994,900
12-MONTH JOB GROWTH 35,400
UNEMPLOYMENT RATE 4.1%
Source: Bureau of Labor Statistics
POPULATION/HOUSEHOLDS
The Washington, DC MSA population is approximately 5,367,000. The Virginia suburbs account for 45.7% of the MSA's total population with 2,454,000 persons, while the Maryland suburbs account for 41.2% with 2,213,000 persons, and the District of Columbia accounts for 10.8%, with 580,000 persons. The land area of the Washington, DC MSA is 5,626 square miles.
AVERAGE HOUSEHOLD INCOMEWASHINGTON, DC MSA AND UNITED STATES
JURISDICTION 2000 (ACTUAL)
2007 (ESTIMATED)
2011 (PROJECTED)
Washington MSA $80,600 $97,900 $110,300
United States $56,600 $66,700 $73,700
Source: Claritas, Inc.
Four jurisdictions dominate the Washington, DC MSA in terms of population, with each having a population exceeding 500,000. These jurisdictions are: the District of Columbia with an estimated population (in 2007) of 580,000; Prince George's and Montgomery counties in Maryland, with populations of 856,000 and 939,000 respectively; and Fairfax County in Virginia, with an estimated population of 1,059,000 (including Fairfax and Falls Church Cities).
According to demographic data analysis firm Claritas, Inc., the Washington, DC MSA’s population is projected to increase to a total population of 5,753,000 persons by the end of 2012 representing a 7.2% increase or 1.4% increase per annum. The area is one of the wealthiest in the nation, with average household income of approximately $97,900. Washington, DC’s median household income is estimated to be $76,500 per year, compared to $59,300 in New York and $55,500 in Los Angeles.
1 Per BLS, the Washington, D.C. MSA includes: District of Columbia, City of Alexandria, Arlington Co., Clarke Co., Fairfax Co., Fairfax City, City of Falls Church, Fauquier Co., Fredericksburg City, Loudoun Co., Manassas City, Manassas Park City, Prince William Co., Spotsylvania Co., Stafford Co., Warren Co., Calvert Co., Charles Co., Frederick Co., Montgomery Co., Prince George’s Co., and Jefferson Co. Claritas, the source of our population, household, and income estimates, excludes some of the metro area’s outer jurisdictions.
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POPULATIONS, HOUSEHOLDS AND INCOME (SELECTED JURISDICTIONS IN THE WASHINGTON, DC MSA)
JURISDICTION 2007 ESTIMATE 2012 PROJECTIONPop. Households Income** Pop. Households Income***
Fairfax Co., VA* 1,059,000 390,000 $120,000 1,105,000 409,000 $133,000Mont. Co., MD 939,000 350,000 114,000 979,000 365,000 128,000PG Co., MD 856,000 307,000 78,000 890,000 319,000 88,000District of Columbia 580,000 262,000 78,000 582,000 267,000 89,000Arlington, VA 201,000 91,000 104,000 206,000 93,000 118,000DC MSA *** 5,367,000 2,029,000 $97,900 5,753,000 2,179,000 $110,300
Source: Claritas, Inc. *Includes Fairfax City & Falls Church; ** Average Household Income; ***Includes other areas not shown
EMPLOYMENT & THE REGIONAL ECONOMY
The Washington, DC region has historically been extremely dependent on direct Federal Government employment as the region’s economic mainstay and thus was often referred to as “recession-proof.” In the 1960s the Federal Government represented 33% of all jobs in the region. Today, the Federal Government employs approximately the same amount of personnel; however, it represents just 11% of all jobs in the region. This change in employment is the result of the Federal Government’s move toward outsourcing. As a result, the Federal Government’s outsourcing efforts have created a vibrant private sector economy in the region. Today, the Washington, DC region is typically referred to as “recession-resistant.”
One benefit of the Federal Government’s percentage reduction in direct employment is that it helped to diversify the Washington, DC MSA’s economy to include America’s fastest growing industries, particularly technology-based industries such as telecommunications and biomedical research and development.
Most employment statistics compiled nationally and locally include only “covered” or “payroll” employment (i.e., jobs covered by unemployment insurance), which excludes jobs of the self-employed and sole proprietorships. In the Washington, DC area, this definition excludes approximately 10% of all jobs, most of which have been created since the mid- to late 1980s. The 15-year average annual payroll job growth in the Washington, DC MSA is about 2% per year, while the growth rate for self-employed and sole proprietorship jobs has been more than twice that.
AT-PLACE “PAYROLL” EMPLOYMENT1
WASHINGTON DC METROPOLITAN STATISTICAL AREA1995 THROUGH OCTObER 2008
JURISDICTION
DC N VA SUB. MD TOTAL2
1995 642,600 908,600 801,200 2,357,600
1996 623,000 942,600 813,600 2,384,200
1997 618,400 978,800 830,900 2,428,100
1998 613,500 1,019,600 859,500 2,468,700
1999 627,400 1,075,800 890,500 2,561,400
2000 650,200 1,144,700 921,000 2,678,400
2001 653,700 1,161,900 924,400 2,718,900
2002 664,200 1,150,700 929,900 2,727,900
2003 665,500 1,166,500 939,100 2,784,500
2004 674,200 1,219,100 948,100 2,854,900
2005 682,200 1,263,700 959,500 2,917,400
2006 687,600 1,295,000 967,500 2,966,900
2007 694,800 1,310,500 973,300 2,989,800
OCT 2008 699,800 1,309,400 968,900 2,994,900
Source: Bureau of Labor Statistics; Suburban Maryland is defined as a combination of the Bethesda-Frederick-Gaithersburg Metropolitan Division and the counties of Calvert, Charles, and Prince George’s.1Includes only those served by state unemployment benefits and excludes self-employed and sole proprietorships. This definition applies to all employment data noted herein.2 Sum of jurisdictions does not equal total due to payroll employment of Jefferson Co., WV.
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EMPLOYMENT BY INDUSTRY
In October 2008, the Washington, DC metropolitan area's employed labor force was approximately 3 million persons. Service industries, which include professional and business services, education and health services, leisure and hospitality, and other services, employed about 1.5 million persons, or 49%, of the total employed civilian labor force.
The area's second major source of employment is Federal, State and Local Government, with a combined 670,300 persons employed. Trade, Transportation and Utilities follows with approximately 404,300 people employed in 2008.
The Natural Resources, Mining, and Construction industry employed 180,000 people in 2008, followed closely by Finance/Insurance/Real Estate industries with 153,800 jobs and the Information Services sector with 90,000. The Manufacturing industry accounted for most of the Washington, DC metropolitan area's remaining employment, with 61,200 jobs.
KEY ECONOMIC SECTORS
In terms of gross regional product (GRP), the Federal Government, tourism, associations, and technology sectors contribute the largest shares of total economic activity in the Washington, DC metropolitan area. These are discussed below.
Federal Government
The Federal Government’s share of GRP is 33.2%, at $122.3 billion (as of 2007). However, it is important to note that the Federal Government’s impact on the Washington, DC metropolitan economy is larger than its share of jobs due to $58.4 billion in procurement spending in 2007. Procurement spending increased by $1.2 billion in 2007, with over half of all Federal procurement dollars being spent in the Washington, DC MSA. It is estimated that procurement spending in the Washington, DC MSA grew 16.9% in 2003, 19.0% in 2004, 2.5% in 2005, and 6.7% in 2006. Procurement spending, although growth is decelerating off the peak of the economic cycle, remains a major benefit to the metropolitan Washington, DC area economy. It is estimated that 7,000 new jobs are created per $1 billion in additional procurement spending.
It is anticipated that 2008's GRP will grow by 2.5% and in particular, procurement spending will have increased to $59.9 million representing a 2.6% increase. Procurement spending will have represented 48% of all 2008 Federal funds spent in the area's economy.
Procurement spending grew 23% and 15% in 2003 and 2004, respectively, due to initiatives in connection with the "War on Terrorism". This compared favorably to the area's historical average growth of 7.3% per year. As illustrated, Washington, DC has historically benefitted from calls for government intervention during times of national crisis. To that end, the Federal Government's initiatives to resolve the credit crisis issues should result in increased procurement spending and job creation.
$122.3 billion (33.2%) of the region’s gross regional product is directly related to the Federal Government.
Indirectly, the Federal Government spends over $58B regionally on activities.
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TARP Program
The national economy slipped into a mild recession in early 2008 brought on by the fall out of the U.S. housing market. By the early fall, the U.S. accelerated into a deeper recession amplified by the failure of Lehman Brothers and the government sponsored bailout of financial giant AIG. The economic uncertainty has led the Federal Government to take unprecedented actions to spur economic growth and stabilize the U.S. and global financial markets.
The well recognized $700 billion (TARP) Troubled Asset Relief Program spearheaded by Treasury Secretary Henry Paulson has been purchasing short-term commercial paper while loosening credit for homebuyers, consumers, small business and Wall Street firms. As of December 2008, The Treasury Department has put to work $375 million of the taxpayer’s $700 million TARP program. Similarly, the Federal Reserve lowered its key interest rate to 0.25% in an effort to make liquidity available to both “Main Street” and “Wall Street”. Lastly, the FDIC has taken aggressive steps to reduce risk of interbanking lending and maintain confidence in the U.S. banking system.
While the extent of the bailout program continues to evolve, the Washington, DC area stands to capitalize from the Federal Government’s intervention. With a new administration coming to power, massive Federal programs engaged and increased government regulations will create significant demand from Federal agencies to staff full-time office using employees throughout the area. To date, the Treasury Department has created the new Office of Financial Stability (OFS) creating 200 new full-time jobs. It is estimated that the Federal Government will generate demand for two to four million square feet of office space over the next two to three years.
Tourism
Tourism is a major source of revenue for the Washington, DC MSA. According to the Travel Industry Association of America, visitors to the District of Columbia alone (excluding the suburbs) numbered 15.1 million in 2006. International tourism remains a major source of revenue as well. In Travel and Leisure’s: America’s Favorite Cities (2007), Washington, DC ranks #1 in sightseeing for historical sites and museums. Visitors spent $5.24 billion in Washington, DC in 2006. The Washington, DC metropolitan area has about 97,500 hotel rooms, making it the 5th largest hotel market in the nation
In 2006, the Washington, DC Convention Center hosted 105 events with 944,000 attendees and generated $464 million in delegate spending. Of note, the Convention Center outsourced $4.6 million to local small businesses in 2006. Marriott plans to take advantage of the increased visitation by building a new $550 million, 1,150 room headquarters hotel across from the Convention Center by 2011.
The National Harbor in Prince George’s County, a 7.3 million square feet, $2 billion mixed-use waterfront development, opened the first phase, the Gaylord National Resort and Conference Center, in April 2008. County executives expect National Harbor to generate roughly $40 million in additional revenue for the county over the next few years.
The National Harbor surpassed a pre-sale record for hotel bookings in 2007.
2 BLS converted in March 2003 from SIC to NAICS coding. This has segmented the industries more accurately, but will affect historical comparisons by industry. It also is important to note that the Washington MSA recently was redefined by the Of-fice of Management and Budget, which affects historical comparisons.
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Associations
Member organizations, or associations, number approximately 6,600 in the Washington, DC region and employ over 98,000 people, according to the Greater Washington Initiative. The Washington, DC MSA is home to 34% of the nation’s office-using associations, more than any other metropolitan area in the U.S. There are more associations located in the Washington, DC MSA than in the next two largest locations for associations, New York and Chicago, combined. Washington, DC’s draw is the Federal Government. The associations seek close proximity to the Federal Government and its lawmakers for lobbying purposes.
Technology
According to the Greater Washington Initiative’s 2008 Regional Report, the greater Washington, DC region supports a science and technology workforce of approximately 512,000 people. In addition, the region ranks first above all other major metropolitan areas in the computer/math and life/physical sciences occupations. This recent ascension to one of the largest technology regions in the nation is due largely to the following two events, which coincided in the 1980s.
First, the deregulation of the telecommunications industry in the 1980s, coupled with significant technology advances, has resulted in a concentration of technology and telecommunications firms in the region. The Washington, DC metropolitan area hosts significant regional facilities for Verizon, Sprint/Nextel, AT&T and others.
Second, the end of the Cold War freed much accumulated technology for commercial use. The Internet, originally a Department of Defense project of the Defense Advanced Research Projects Agency (DARPA), originated in the region. Tysons Corner was home to MAE East, one of the original central processing units for the Internet.
Science and technology firms have increasingly contributed to the Washington, DC metropolitan area's job growth and gross regional product. The following table reflects metropolitan Washington, DC’s prominence in the science and technology fields. The Washington, DC MSA outranks much larger metropolitan areas in technology and science employment.
2007 SCIENCE AND ENGINEERING WORKFORCE(NUMbER OF PAYROLL JObS)
REGION JOBS
New York 672,000
Washington 512,000
Los Angeles 387,000
San Francisco 311,000
Chicago 298,000Source: Greater Washington Initiative “2008 Regional Report”
EMPLOYMENT
The Washington, DC region has long been considered "recession-resistant" due to the stabilizing force of Federal Government employment. The area’s average annual job growth of 2% over the past 15 years is driven by direct government hiring and indirect government employment via procurement spending. Much of this indirect employment has resulted in high-salaried positions in the professional and business services field. The professional and business services field enjoyed an 11% growth in jobs for the 12-month period ending October 2008.
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RETAIL SALES
Data on retail sales further confirms the picture of an economically vibrant Washington, DC metropolitan area. Average annual household income of almost $97,900 generated estimated grocery store sales of $9.8 billion in 2007. In fact, the median household income of the Washington, DC metropolitan area is second in the nation, surpassed only by the San Jose-Sunnyvale metro area. As a result of such strong household buying power, retail sales levels are likely to remain high, maintaining the economy's stability. NCREIF reports that total returns on Washington, DC MSA core retail assets were 6.22% for the 12 months ending September 2008, 102 basis points above the national average.
Among grocery-anchored shopping centers, vacancy in the Washington, DC MSA was 5.5% as of third quarter 2008. This market segment is attracting major retailers to the Washington, DC MSA along with domestic and international investors.
LABOR FORCE
According to the Greater Washington Initiative’s “2008 Regional Report,” the Washington, DC metropolitan area’s labor force is the best educated in the country, with over 46.0% of the population having bachelor’s degrees or higher. In addition, the Washington, DC region has more advanced degree holders than any other metropolitan area in the nation, at 19%. In fact, three of the ten most educated places in the U.S. are in the Washington, DC metropolitan area, as shown in the following table.
bEST EDUCATED PLACES IN U.S.JURISDICTION GRADUATE DEGREESArlington, VA 35.7%
Davis, CA 34.6%Brookline, MA 32.5%Evanston, IL 31.2%
Bloomington, IN 31.2%Towson, MD 31.2%Oak Park, IL 29.1%
Bethesda, MD 29.1%Alexandria, VA 29.0%
West Hartford, CT 28.9%Source: Money Magazine (www.money.com)
Strong average household income ($97,900) has translated into grocery store sales of $9.8 billion.
The region’s grocery-anchored shopping centers enjoy a 2.3% vacancy rate.
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TRANSPORTATION
Transportation is a major challenge facing the Washington, DC metro area, and government agencies are responding. The Washington, DC metropolitan area ranked first for America’s Worst Congested Cities, according to a 2008 study by the Texas Transportation Institute. The study found that each commuter experienced 60 hours of delay per year and 28.3% of all commuters have travel times longer than 45 minutes. With large suburban population increases during the 1980s and 1990s, infrastructure improvements are needed. The metropolitan area focused on two of the worst congested areas, the Woodrow Wilson Bridge and the I-95 Springfield Interchange. The Woodrow Wilson twelve-lane bridge replacement project is in the final stage of construction now that both spans of the bridge are open. The I-95 Springfield Interchange, commonly referred to as the “mixing bowl” project, completed construction in 2007 and improves the flow of traffic along I-395, I-495, and I-95. The Springfield Interchange project was an eight-year, $700 million endeavor.
To better serve the growing region, the Washington Metropolitan Area Transit Authority (WMATA) has continued its expansion of the MetroRail system and plans to further link the suburbs with downtown Washington, DC. Construction of the first 11.6 mile segment started in 2008 and will finish by 2013. The second 11.5 mile segment is expected to finish by 2015 at which time Dulles International Airport will be linked by rail to Washington, DC. The entire project is estimated to cost $5.0 billion, of which the Federal Government will provide roughly $900 million. State and local governments, as well as commercial landowners near planned stations, will cover the remaining cost. WMATA is focused on doubling transit ridership through the Transit Service Expansion Plan that includes rail station improvements, additional feeder bus services, more parking, and new stations and extensions to the rail system.
Below is a summary on transportation projects and issues in the Washington, DC area:
The Inter-County Connector (ICC) appears on track to ease •congestion in Montgomery County. Former Governor Ehrlich marked the final Federal approval of the road with a ceremony in May 2006. Construction started in 2007 on the first phase, I-270/I-370 to MD 97 and should be complete by late 2010/early 2011. Once completed the ICC project will increase trade and mobility between economic hubs in suburban Maryland while providing critical cost-effective transportation infrastructure to existing and future developments. MetroRail to Tysons Corner and Reston, with eventual service •to Dulles Airport, has received funding from the Federal Government. Construction of the first segment is underway and will be completed by 2013. Progress continues on construction of the new Woodrow Wilson •Bridge, as both spans of the bridge are open to traffic. The project has entered its final stage of construction. As of December 2008 the THRU lanes on the new Wilson Bridge were open.The New York Avenue Metro Station opened in the District of •Columbia in November 2004. This station serves the NOMA area and as a result more than 17 million square feet of office product is planned for NOMA. The station was built through a unique public-private partnership that was based on the potential increase in value of the land near the station.High-occupancy toll (HOT) lanes, which will allow non-HOV •motorists to pay a toll to access the HOV lanes, have been approved for the Northern Virginia Beltway portion of the project. Construction work on the 14-mile stretch of the Beltway began in 2008. The I-95/395 portion of the HOT project is undergoing environmental review, with construction expected to begin in 2009.
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AIRPORTS
The Washington, DC MSA has exceptional access to air transportation through three international airports:
Washington Reagan National Airport, 7.8 miles to subject •PropertyWashington Dulles International Airport 29.8 miles to subject •Property Baltimore Washington International Thurgood Marshall Airport, •43.5 miles to subject Property
PASSENGER TRAFFIC COUNTS WASHINGTON, DC MSA’S MAJOR AIRPORT
2004 2005 2006 2007*Ronald Reagan Washington National
15,943,859 17,847,884 18,500,121 18,768,486
Washington - Dulles International
22,868,852 27,052,118 22,813,901 24,825,543
BWI/Thurgood Marshall
20,340,000 19,740,000 19,846,980 20,199,816
Source: Metro Washington Airports Authority and BWIAirport.com Note: Excludes general aviation*November 2006 through October 2007 period, except BWI, which is the month of September 2007 annualized
EDUCATION
The Washington, DC MSA is home to many fine colleges and universities. Georgetown University, American University, George Washington University, George Mason University, Catholic University of America, the University of Maryland, and Howard University have helped to make the Washington, DC metropolitan area the most highly educated in the country. As a result, technology companies in particular have been able to meet their demands for highly skilled employees. In turn, the ability of companies to meet their employment demands has made these companies a significant factor in the Washington, DC metropolitan area’s economic expansion and success.
QUALITY OF LIFE
The Washington, DC metropolitan area’s culture is as dynamic as its economy and is deeply tied to the national and international markets that define it. The nation’s capital boasts a well-educated and highly skilled work force, an award-winning MetroRail system, the world’s largest collection of museums and art galleries, excellent health care systems, abundant parks, world-renowned restaurants, and historic buildings and monuments. In a 2007 Places Rated Almanac survey, Washington, DC ranked the seventh metropolitan area in which to live in North America. In 2008, Money Magazine rated Bethesda, MD fifth in the nation to live and start a business.
Washington, DC is home to several major professional sports teams, including the Washington Redskins football team, the Washington Nationals baseball team, the Washington Wizards and Mystics basketball teams, the Washington Capitals hockey team and the DC United soccer team. There are also many college sports teams in the area, giving sports fans a wide variety of spectator choices.
Washington, DC cultural activities are plentiful as well. Besides the Smithsonian museums, there are dozens of private museums, theaters, the National Arboretum, National Archives, Mount Vernon, and the Kennedy Center for the Performing Arts.
TOP CITIES IN WHICH TO LIVE IN NORTH AMERICA
RANK METROPOLITAN AREA
1 Pittsburgh, PA
2 San Francisco, CA
3 Seattle, WA
4 Portland, OR
5 Philadelphia, PA
6 Rochester, NY
7 Washington, DC
8 San Jose-Sunnyvale, CA
9 Boston, MA
10 Madison, WI
Source: Places Rated Almanac, 2007
DATA RESEARCH:The data contained herein has been compiled with the assistance of Delta Associates, a leader in real estate market research. Delta Associates, 500 Montgomery Street, Suite 600, Alexandria, VA 22314, Telephone 703-836-5700.
bEST U.S. PLACES TO LIVE AND LAUNCH A bUSINESS
RANK PLACE
1 Bellevue, WA
2 Georgetown, Tx
3 Buford, GA
4 Marina Del Ray, FL
5 Bethesda, MD
6 Portland, OR
7 Denver, CO
8 Charlotte, NC
9 Fort Worth, Tx
10 Franklin, MA
Source: Money Magazine (www.money.cnn.com), 2008
Chinatown
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SECTION V
Market Analysis
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METROPOLITAN WASHINGTON, DC OFFICE MARKET
Introduction
The metropolitan Washington, DC office market enjoyed positive net absorption of 3.6 million square feet and $3.1 billion of investment sales volume during 2008. At year-end 2008 the metropolitan area’s overall vacancy rate (inclusive of sublet vacancy) was 10.5% which represents the fifth lowest vacancy rate of 13 comparable metropolitan office markets throughout the nation. The national overall vacancy rate at year-end 2008 was 12.4% representing a 130 basis point increase from the prior year.
OFFICE MARKET HIGHLIGHTS
Net Absorption: 3.6 million square feet was absorbed during 2008.
Sublease Space: Sublease space represents just 1.2% of metropolitan Washington, DC’s total standing inventory.
Direct Vacancy Rate: 9.3%
Overall Vacancy Rate: 10.5%
Space Under Construction(or renovation):
15.4 million square feet
Rental Rates: Increased 0.1% during 2008 for all building classes
Investment Sales: $3.7 billion with an average, metropolitan area wide, sale price of $431 per square foot, up from $369 per square feet the prior year
METROPOLITAN WASHINGTON, DCOFFICE INVENTORY—DECEMbER 31, 2008
METROPOLITAN WASHINGTON, DC OFFICE MARKETCALENDAR YEAR 2008
SUBMARKET INVENTORYUNDER CONST. OR RENOVATION
DIRECT VACANCY RATE
NET ABSORPTIONCY 2008
DC 124,369,855 9,640,949 6.6% 546,000
Northern VA 173,776,087 3,365,834 11.0% 2,333,000
Suburban MD 86,536,602 2,349,418 10.1% 735,000
Total 384,682,544 15,356,201 9.3% 3,614,000 Direct Vacancy Rate does not include sublet availability.
WASHINGTON, DC NORTHERN VA SUBURBAN MD
45%
32%23%
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Net Absorption
The metropolitan Washington, DC area’s continued job growth and low unemployment (4.1%, October 2008) resulted in net positive absorption of 3.6 million square feet during 2008. Sublease availability represented just 1.2% of metropolitan Washington, DC’s total office inventory. At 1.2%, sublease availability is less competitive with prime space and has limited impact on rental rates.
Northern Virginia led the metropolitan area’s calendar year 2008 net absorption with 2.3 million square feet as two buildings totaling 835,000 square feet delivered 88% leased. The remaining two markets, suburban Maryland and the District of Columbia, also enjoyed positive net absorption of 735,000 square feet and 546,000 square feet, respectively, during calendar year 2008.
METROPOLITAN WASHINGTON, DC NET AbSORPTION1980–DECEMbER 2008
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Leasing
The metropolitan Washington, DC area continues to enjoy strong market fundamentals and stable leasing activity. Gross leasing activity totaled approximately 24.5 million square feet during 2008. Northern Virginia attracted government contractors, while the District of Columbia enjoyed leasing activity from law firms and the Federal Government. The following chart reflects the distribution of activity by type of tenant from 2004 through 2008.
OFFICE LEASING ACTIVITY bY SECTORMETROPOLITAN WASHINGTON, DC AREA 2004–2008
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Vacancy
Metropolitan Washington, DC’s office market experienced a direct vacancy rate of 9.3% at, year-end 2008. The metropolitan area’s overall vacancy, inclusive of sublet availability, was 120 basis points greater than its direct vacancy rate. At 10.5%, the metropolitan Washington, DC office market represents the 5th lowest overall vacancy rate out of the 13 major markets in the nation.
As illustrated on the following chart, the metropolitan Washington, DC office market compares favorably to the nation’s average overall vacancy rate of 12.4%. Moreover, the metropolitan Washington, DC office market is 370 basis points less than the remaining eight major market’s average overall vacancy rate of 14.2%.
Metropolitan Washington, DC enjoys a stable economy that supports a strong office market when compared to the national markets. Continuous job growth and low unemployment has resulted in metropolitan Washington, DC being one of the best office markets in the nation.
OFFICE VACANCY RATESSELECT METROPOLITAN AREAS—DECEMbER 2008
METROPOLITAN WASHINGTON, DC OFFICE MARKETDIRECT VACANCY RATES (ALL BUILDING CLASSES)
CALENDAR YEAR ENDS
MARKET 2001 2002 2003 2004 2005 2006 2007 2008Washington, DC 4.3% 4.6% 5.6% 5.1% 5.1% 6.2% 5.6% 6.6%Northern VA 6.8% 11.1% 11.0% 9.0% 7.4% 8.0% 9.1% 11.0%Suburban MD 7.7% 8.7% 9.5% 8.6% 7.5% 8.4% 9.1% 10.1%Metro Area Total
6.2% 8.4% 8.9% 7.7% 6.7% 7.5% 8.0% 9.3%
Construction
Metropolitan Washington, DC’s strong market fundamentals include 15.3 million square feet of office space under construction and/or renovation at year-end 2008; down from 20.6 million square feet at year-end 2007. It is anticipated that this downward trend will continue as inventory is absorbed and the “credit crunch” impacts project funding. To that end, just 7.8 million square feet broke ground during 2008, compared to 15.7 million square feet during 2007. 2008’s construction starts remain below the levels achieved in 2007 for the metropolitan Washington, DC area and are at the lowest rate since 2005.
The bulk of 2008’s metropolitan wide space under construction is situated in the District of Columbia where 9.6 million square feet is under construction. The majority (64%) of the District of Columbia’s construction is situated in the Southwest and Capitol Riverfront submarkets near the new National’s baseball stadium, and the Capitol Hill and NoMa submarkets where significant government leases have been signed.
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CONSTRUCTION STARTS WASHINGTON METRO AREA2004–DECEMbER 2008
Rental Rates
Metropolitan Washington, DC’s office market enjoyed strong leasing activity; however, the metropolitan wide average rental rate increased just 0.1% during 2008. Rent growth in preferred submarkets outperformed the metropolitan area’s average. As construction starts have slowed during 2008, it is anticipated that metropolitan Washington, DC’s average rental rates will rise, again supported by stronger growth from the closer-in submarkets.
Investment Sales
Metropolitan Washington, DC continues to be one of the premier investment markets in the nation, primarily due to its stable economy. As a result, the average cap rate for core office assets in the metropolitan Washington, DC area, on a 12-month trailing basis, is 6.2%, according to Real Capital Analytics.
Although the credit crunch has impacted investment sales volumes, the metropolitan Washington, DC average sale price for all building classes was $431 per square foot on total sales volume of $3.7 billion. During 2007, the average sale price was $369 per square foot.
COMPARATIVE INVESTMENT SALES VOLUMEOFFICE bUILDINGS—2000–DECEMbER 2008
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Outlook
Overall the metropolitan Washington, DC office market remains as one of the top performing office markets in the nation and should remain favorable during 2009 due to the Federal Government’s positive impact on the regional economy that was over $377 billion in total output during 2008 representing a 2.5% increase over 2007 and favorable in comparison to the national gross domestic product growth of 1.0%. Even during past national recessionary periods, the metropolitan Washington, DC area’s gross regional product (GRP) has grown. During the last four periods of national gross domestic product contractions, ranging from six to sixteen months, the metropolitan Washington, DC area GRP grew 0.2% to 3.1%.
The Federal Government’s procurement spending in the metropolitan Washington, DC area represents 1/3rd of the area’s GRP and totaled an estimated $59.9 billion during 2008 (48% of all Federal procurement). This represents a 2.5% increase over 2007’s procurement spending of $58.4 billion a 2.6% increase over 2006’s spending (2006 enjoyed a 6.7% rise over 2005’s spending). Each $1 billion increase in procurement spending creates approximately 7,000 jobs.
As the Federal Government’s bailout initiatives in regard to the credit crisis wore their way through implementation and as regulatory initiatives are put in place, Federal procurement is anticipated to surge again. To that end, Washington, DC has historically benefited from increased calls for government intervention during times of national crisis. During the savings and loan bailout of the 1980’s, the Resolution Trust Corporation was created and in the process generated 2 million square feet of office space demand.
RECESSION WASHINGTON METRO AREA
03/2001 - 11/2001 +2.5%
07/1990 - 03/1991 +0.2%
07/1981 - 11/1982 +3.1%
01/1980 - 07/1980 +2.3%
FEDERAL PROCUREMENT SPENDINGWASHINGTON METRO AREA 2000–2008
DATA RESEARCHThe data contained herein has been compiled with the assistance of Delta Associates, a leader in real estate market research. Delta Associates, 500 Montgomery Street, Suite 600, Alexandria, VA 22314, Telephone 703-836-5700.
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WASHINGTON, DC OFFICE MARKET
Introduction
Washington, DC’s office market experienced positive net absorption of 546,000 square feet and almost a 2% rise in rental rates during calendar year 2008. Direct vacancy rates remain low at 6.6% and overall vacancy rates were 7.3% at year-end 2008. In short, the District of Columbia remains one of the top performing office markets in the nation with a strong tenant base. The region’s continued job growth of 95,400 new jobs over the next three years will continue to create demand for office space, in particular because a vast majority of these net new jobs are quality office based jobs.
The region’s job growth will help to mitigate Washington, DC’s inventory of new development that is largely occurring in the Southwest, Capitol Riverfront, Capitol Hill and NoMa submarkets where 6.1 million square feet
is under construction. These submarkets have been the recipients of new development primarily due to readily available sites, unlike the CBD and East End submarkets where development sites typically result from the demolition of older Class B/C buildings. As a result, construction represents just 5.1% of the CBD's inventory and moreover, just 2.5% of the East End's total inventory; the largest submarket in Washington, DC.
Due to the lack of readily available development sites in the East End and CBD, the inventory of older stock assets decreases; which, in-turn, creates demand for the remaining inventory of Class B/C buildings. To that end, Washington, DC’s Class B rents increased 2.2% during calendar year 2008. Over the past 10 years, Class b rental rates have increased on average 4.7% annually.
JOb GROWTH PROJECTIONS:+ 23,900 jobs during 2008+ 29,000 jobs during 2009+ 42,500 jobs during 2010
OFFICE MARKET HIGHLIGHTS
Net Absorption: 546,000 square feet of positive net absorption occurred during 2008
Direct Vacancy Rate: 6.6% at year-end 2008
Overall Vacancy Rate: 7.3% at year-end 2008
Sublease Space: Represents just 0.7% of total inventory
Rents: Increased 1.9% during calendar year 2008
Space Under Construction:
9.6 million square feet was under construction or renovation at year-end 2008; 64% of which is located in the Southeast and Capitol Hill/NoMa submarkets
Investment Sales: Investment sales totaled $2.3 billion during 2008. The average sale price was $578 per square foot
Net Absorption
The District of Columbia experienced positive net absorption of 546,000 square feet during 2008. The East End surpassed other submarkets in positive net absorption (+739,000 square feet during 2008), as leasing activity boosted net absorption. The CBD submarket continues to recover after the Corporate Executive Board vacated -450,000 square feet to relocate to Northern Virginia during the 1st quarter 2008 and the U.S. Equal Employment Opportunity Commission vacated 206,000 square feet at 1801 L Street, NW so the building can be renovated.
Class A space enjoyed 549,000 square feet of positive net absorption during calendar year 2008. Class A space remains in strong demand and in-turn, continues to positively impact Class B & C rents.
At year-end 2008, sublease space represented just 0.7% of Washington, DC’s total office inventory. In short, sublease availability has minimal impact on rental rates for prime space.
Demand is anticipated to increase in 2009. Demand for office space in the District of Columbia is anticipated to increase due to the implementation of the Trouble Asset Relief Program (TARP). In particular, in the East End and CBD submarkets due to their proximity to the Federal Government. It is estimated that 30 cents of every
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dollar spent of Federal bailout money will be towards overhead, which includes office space needs. At this time, the Office of Financial Stability is searching for 30,000 square feet of office space.
NET AbSORPTION & DIRECT VACANCY RATEWASHINGTON, DC OFFICE MARKET
1997–DECEMbER 31,2008
Vacancy
The District of Columbia’s office market boasts one of the lowest vacancy rates in the nation. Washington, DC’s overall vacancy rate was 7.3% at year-end 2008, a 90 basis point increase from the prior year. Similarly, its direct vacancy rate was 6.6% at year-end 2008, a 100 basis point gain from the prior year.
VACANCY RATES (ALL bUILDING CLASSES)WASHINGTON, DC
DECEMBER 2007 DECEMBER 2008 CHANGE
VACANCY SF (MILL)
VACANCY SF (MILL)
VACANCY SF (MILL)
Direct 5.6% 7.0 sf 6.6% 8.2 sf +1.0% +1.2 sf
Sublet 0.8% 0.9 sf 0.7% 0.9 sf -0.1% 0.0 sf
Construction
The District of Columbia has enjoyed very strong market fundamentals over the past ten years and as a result, 9.6 million square feet of office space was under construction, or renovation, at year-end 2008. The majority of construction (64%) is situated in the Capital Hill, NoMa, Southwest and Capitol Riverfront submarkets as the city and private investors work to revitalize the Southwest waterfront, near the new baseball stadium and the NoMa neighborhood now that the Department of Justice, Homeland Security and NPR plan to relocate there.
The East End and CBD submarket's enjoy the smallest amount of construction when compared to their existing inventories than any other submarket in Washington, DC. Construction in the East End, the largest submarket in the District of Columbia (48.8 million square feet), represents just 2.5% of the East End's inventory. Similarly, construction in the CBD represents 5.1% of its inventory. By comparison, construction in the Capitol Hill/NoMa submarket and Southwest/Capitol Riverfront submarket represents 21.9% and 26.3%, of their respective inventory's.
Rental Rates
Office rents, for all classes of space in Washington, DC rose 1.9%. It is anticipated that rents in stronger submarkets such as the East End will outperform the city-wide average of 1.9%; especially Class B properties that are in high demand. Long-term average for Class A, B, and C rents are listed in the chart below.
LONG-TERM RENTAL RATESAVERAGE ANNUAL INCREASE
5-YEAR 10-YEAR
Class A 3.9% 3.4%
Class B 4.4% 4.7%
Class C 3.5% 5.1%
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Investment Sales
Investment sales volume totaled $624 million on five transactions during the 4th quarter 2008, compared to $247 million on five transactions during the 3rd quarter 2008. Sales volume for 2008 totaled $2.3 billion. The average sale price in Washington, DC during 2008 was $578 per square foot, which is up notably from $460 per square foot in 2007.
Washington, DC enjoyed two record breaking transactions during 2008:
PROPERTY 2099 PENNSYLVANIA AVE 51 LOUISIANA / 300 NJ AVE
SALE PRICE $172,500,000 $378,000,000
PRICE PSF $835 PSF $824 PSF
BUYER Vico Capital Dweck Properties
Outlook
Overall, the long term outlook for Washington, DC remains positive with low vacancy rates and continued demand to be located in the nation’s capital, in particular, from TARP activities. Washington, DC continues to enjoy a strong economy fueled by the Federal Government’s presence and continues to be a significant hub for law firms, accounting firms, associations and lobbying firms.
2008 MARKET OUTLOOK
Overall Vacancy: Currently 7.3% and should remain favorable; particularly in the CBD and East End
Leasing Activity: Steady leasing activity is anticipated for 2009
Construction: Limited new groundbreakings are anticipated; however, renovations should remain steady
DATA RESEARCH:The data contained herein has been compiled with the assistance of Delta Associates, a leader in real estate market research. Delta Associates, 500 Montgomery Street, Suite 600, Alexandria, VA 22314, Telephone 703-836-5700.
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EAST END OFFICE SUBMARKET
Overview
The East End submarket has, over the past few years, reshaped the perception of downtown Washington, DC. The center of the city pulls east due to the phenomenal combination of office, retail and residential growth that has transformed the East End into one of the most dynamic markets in the District of Columbia. With a current inventory of 43.8 million square feet and with over 2.8 million square feet of new construction, redevelopments, and conversions in the pipeline, the East End now surpasses the CBD in size and rivals its prominence.
The boundaries of the East End are delineated by 3rd Street, NW to the east, 15th Street, NW to the west, Constitution Avenue, NW to the south, and M Street, NW to the north. The East End benefited from the development boom of the late 1980s and 1990s, due mostly to the abundance of available development sites in comparison to the CBD. From 1980 to 1992, 23.2 million square feet of office space delivered. This figure represents 53% of the East End’s current inventory. As a result, the East End submarket has matured over the past ten years and is now the most desirable submarket in the city and home to most of the newer, “trophy/Class A” office buildings in the District of Columbia.
The Convention Center, north of Mt. Vernon Square, serves as a major anchor to the northern edge of the submarket while the Verizon Center, numerous high-end restaurants and retail shops including Macy’s and Gallery Place exemplify this area’s strong amenity base. The East End is well served by METRO Rail with six METRO stations and boasts a strong Federal presence, as the Federal Triangle and Judiciary Square are both located here.
SELECT TENANTS—EAST END SUbMARKET
GOVERNMENT AGENCIESDepartment of Justice•District Government•Federal Election Commission•FBI•Immigration & Naturalization •ServiceTreasury Department•
ASSOCIATIONSAmerican Assn. for the •Advancement of ScienceAmerican Assn. of Retired •PersonsAmerican Bar Association•National Education Association•Mortgage Bankers Association •of America
LAW FIRMSArnold & Porter•Baker Botts•Covington & Burling•DLA Piper•Hogan & Hartson•Howrey Simon Arnold & White•Kikland & Ellis•Morgan, Lewis & Bockius•Nixon Peabody•Sidley Austin•
BANKING/ACCOUNTING FIRMSDeloitte & Touche•Ernst & Young•PNC Bank•PricewaterhouseCoopers•
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Demand & Vacancy
The overall vacancy rate in the East End was 6.9% at year-end 2008, down from 7.3% at mid-year 2008. The direct vacancy rate (vacancy without sublet vacancy) was 6.3%, down from 6.5% at mid-year 2008. Only 263,000 square feet of sublease space remains in the East End representing just 0.6% of the inventory, which has little impact on prime rental rates. Net absorption totaled 739,000 square feet during calendar year 2008, the best performing submarket in the District of Columbia. The 2nd best submarket is Southwest at 185,000 square feet of positive net absorption.
NET AbSORPTION & DIRECT VACANCY RATESEAST END SUbMARKET—1998–2008
Leasing
Gross leasing activity has been steady in the East End totaling over 2.7 million square feet during 2008. The top three notable lease deals of the past nine months were renewals: the National Labor Relations Board renewed 276,000 square feet at 1099 14th Street, NW, NPR renewed 152,000 square feet at 635 Massachusetts Avenue, NW, and PricewaterhouseCoopers renewed 130,000 square feet at 1301 K Street, NW.
NOTAbLE LEASE TRANSACTIONSEAST END SUbMARKET (2008)
TENANT ADDRESS SQ. FTG.
National Labor Relations Brd (Renew) 1099 14th St, NW 276,000
NPR (Renewal) 635 Massachusetts Ave, NW 152,000
PricewaterhouseCoopers (Renewal) 1301 K St, NW 130,000
GSA (Renew) 1120 Vermont Ave, NW 91,000
PEW Charitable Trusts 901 E St, NW 90,000
Seyfarth Shaw, LLP (Sublease) 975 F St, NW 77,000
SAIC (Renewal) 1120 Vermont Ave, NW 72,000
Dept of Homeland Security 650 Massachusetts Ave, NW 51,000
Federal Labor Relations Auth (Renew) 1400 K St, NW 45,000
Department of Justice (Renew) 800 K St, NW 44,000
GSA 1120 Vermont Ave, NW 40,000
Barbour Griffith & Roger 601 13th St, NW 38,000
Baker & Daniels 1050 K St, NW 37,000
Shook, Hardy & Bacon 1155 F St, NW 37,000
Latham & Watkins (Sublease) 555 11th St, NW 36,000
Prudential Relocation Service (Renew) 1325 G St, NW 31,000
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Development
The East End submarket has been in strong demand and as a result the submarket has enjoyed tremendous development opportunities. Below is a list of projects that are currently under construction representing just 2.5% of the East End's existing inventory.
PROJECTS UNDER CONSTRUCTION/RENOVATION
ADDRESS DEVELOPER/OWNER SQ. FT. DEL. DATE
1155 F St NW Jemal's Square 320 250,000 Jan-09
1510 H St NW Lafayette Realty, Inc. 51,000 Feb-09
700 6th St NW Akridge 300,000 Apr-09
901 K St NW Carr Services, LLC 261,000 Sep-09
733 10th St NW PN Hoffman 150,000 Apr-10
801 7th St NW1 Riverdale International 100,000 Jan-12
Total: 1,112,0001Renovation
Investment Sales
During 2008, the East End enjoyed investment sales totaling $851 million with an average sale price of $573/square foot. The most notable transaction was the sale of 635 Massachusetts Avenue, NW for $119 million ($786/SF).
Outlook
Washington, DC's East End experienced healthy market conditions during 2008, as vacancy edged down and rents inched up. Conditions remain sturdy for the East End submarket as absorption remains above-average. The East End is anticipated to remain stable and rental rates are expected to increase as vacancy remains low enough to justify rent growth. This submarket is well positioned for the future and remains one of the most desirable locations for employers due to its proximity to public transportation, regional roadways and inventory of various
classes of buildings that serve both high image and economical tenants. The continued positive outlook of the East End is evidenced by its strong absorption and continued low vacancy statistics that compare very favorably against competing submarkets.
RECENT bUILDING PURCHASES(2008)
ADDRESS YEARBUILT
SALEDATE SALE PRICE PSF BUYER
635 Mass. Ave., NW
1968/ 1993 Oct-08 $119,470,000 $786 Boston
Properties
650 F Street, NW 1924 Oct-08 $297,000,000 $700 Tishman Speyer
666 11th Street, NW 1969 Sep-08 $41,000,000 $373 UBA / J
Street
1401 K Street, NW 1929 Sep-08 $53,873,000 $432
Guardian Realty Properties
1333 H Street, NW 1982 Aug-
08 $130,750,000 $568 Miller Global Properties
600 F Street, NW 1910 May-08 $5,000,000 $385 Douglas
Dev. Corp.
777 6th Street, NW 2007 Apr-08 $123,000,000 $654
American Association for Justice
1030 15th Street, NW 2008 Apr-08 $181,200,000 $552 INVESCO
729 15th Street, NW 1929 Apr-08 $6,550,000 $211 Douglas
Dev. Corp.
901 E Street, NW 1989 Apr-08 $155,000,000 $622The Pew Charitable Trusts
1000 & 1010 Vermont Ave, NW
1926/ 50/85
Mar-08 $62,418,000 $440 Pembroke
Real Estate
918 F Street, NW 1890 Jan-08 $13,600,000 $439 Douglas Dev. Corp.
DATA RESEARCH:The data contained herein has been compiled with the assistance of Delta Associates, a leader in real estate market research. Delta Associates, 500 Montgomery Street, Suite 600, Alexandria, VA 22314, Telephone 703-836-5700.
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COMPARABLE SALE LOCATION MAP
11
10
450 H STREET, NW
ArlingtonHouse
KennedyGraves
ArlingtonCemetary
VisitorCenter
FortMyer
Iwo JimaMemorial
NetherlandsCarillon
Rosslyn
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Constitution Ave
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Reflecting Pool
Vietnam VeteransWar Memorial
Lincoln Memorial
Ohio Drive
WestPotomac
Park
FranklinDelano
RooseveltMemorial
Jefferson Memorial
Tidal Basin
Washington Momument
TheEllipse
White House
LafayetteSquare
George WashingtonUniversity
National Geographic
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Massachusetts Ave
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MetroCenter
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FederalTriangle
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Archives-NavyMemorial
Constitution Ave
Pennsylvania Ave
JudiciarySquare
Nat’l Museumof American
HistoryNat.Museum
of Natural History
National Gallery of Art
Madison Drive
Jefferson Drive
TheMall
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Independence Ave
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Virginia AveL’Enfant
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H St.
G St.
BotanicGarden
United StatesCapitol
Southwest Frwy
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Massachusetts Ave
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Library ofCongress
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VerizonSportsArena
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S M I T H S O N I A N
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COMPARAbLE SALE LEGEND
1) 1401 K Street, NW
2) 1000 & 1010 Vermont Ave, NW
3) 666 11th Street, NW
4) 1225 19th Street, NW
5) 1343 L Street, NW
6) 2021 L Street, NW
7) 1602 L Street, NW
8) 1016 16th Street, NW
9) 1430 K Street, NW
10) 111 K Street, NW
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COMPARABLE SALE SURVEY—INVESTMENT PROPERTIES
TOWER BLDG | 1401 K STREET, NW
Built 1929/1987
Size 124,706 sf
Seller AEW
Buyer Guardian
Sale Date September 2008
Sale Price $53,872,992
Price PSF $432.00
Parking Ratio None
Location Superior
Quality Superior
12-story Class B office building »100% leased at time of sale »Historic building on McPherson Park »No parking »5.5% cap rate »
1000 & 1010 VERMONT AVE, NW
Built 1950/1985
Size 141,821 sf
Seller Guardian
Buyer Pembroke
Sale Date March 2008
Sale Price $62,418,259
Price PSF $440.12
Parking Ratio None
Location Superior
Quality Comparable
Two 12-story Class B-/C office buildings »97% leased at time of sale »Great location and views, but site is chal- »lenging for redevelopmentCap 4.9% »
666 11TH STREET, NW
Built 1969
Size 109,959 sf
Seller Leonard Doggett
Buyer J Street Development Co.
Sale Date September 2008
Sale Price $41,000,000
Price PSF $372.87
Parking Ratio None
Location Similar
Quality Similar
11-story Class C+ office building »Located next to Metro Center Station »80% of building rolls over the next 4 yrs »Planned for renovation to reposition the »property
JEFFERSON BLDG | 1225 19TH ST, NW
Built 1963/1987
Size 74,152 sf
Seller BlackRock
Buyer Invesco
Sale Date December 2008
Sale Price $26,500,000
Price PSF $357.37 psf
Parking Ratio 0.90/1,000 sf
Location Similar
Quality Similar
8-story Class B- office building »Good occupancy history and its landmark »restaurant, The Palm, extended lease through 202693% leased to strong and diverse roster »of tenants
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COMPARABLE SALE SURVEY—USER SALES
1343 L STREET, NW
Built 1959
Size 9,496 sf
Seller Summit-Next JV
Buyer Law Media Group, LLC
Sale Date February 2008
Sale Price $4,650,000
Price PSF $489.68
Parking Ratio 0.53/1,000 sf
Location Comparable
Quality Comparable
2-story Class C office building »Vacant at time of sale »Owner/user transaction »
2021 L STREET, NW
Built 1969/2008
Size 75,457 sf
Seller Potomac Development Partners
Buyer American Society of Hematology
Sale Date October 2008
Sale Price $49,047,050
Price PSF $650.00
Parking Ratio 0.67/1,000 sf
Location Similar
Quality Superior
10-story Class B office building »3 stories added on top of the building »prior to saleMid-block »Owner/user transaction »Owner occupying top 5 floors »
1602 L STREET, NW
Built 2006
Size 51,907 sf
Seller Morgan Stanley
Buyer Independent Sector
Sale Date February 2008
Sale Price $30,500,000
Price PSF $587.59
Parking Ratio None
Location Similar
Quality Superior
9-story Class B office building »Vacant at time of sale »
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COMPARABLE SALE SURVEY—CONDO SALES
1016 16TH STREET, NW (4 CONDO SALES)
Built 1923/1986
Size 1) 17,536 sf;2) 678 sf; 3) 3,081 sf
Seller Akridge
Buyer 1) The Jesuit Conference2) 1871 Heritage Headqtrs
3) Mex-Amer Legal Def. Fund
Sale Date 1) Oct. '08; ;2) Sep. '08; 3) Oct. '07
Sale Price 1) $9,800,0002) $384,000
3) $1,675,000
Price PSF 1) $558.85;2) $566.37; 3) $543.65
Parking Ratio None
Location Superior
Quality Comparable
1430 K STREET, NW(3 CONDO SALES)
Built 2006
Size 1) 13,016 sf2) 12,273 sf3) 6,508 sf
Seller Totah
Buyer 1) Amer. Sociological Assn2) Amer. Education Res. Assn
3) Unnamed Buyer
Sale Date 1) Aug. '08; 2) Oct. '063) Mar. '07
Sale Price 1) $8,229,4402) $6,646,4253) $3,395,000
Price PSF 1) $632.26; 2) $541.55; 3)$521.67
Parking Ratio 0.50/1,000 sf
Location Superior
Quality Superior
111 K STREET, NE
Built Delivers in 2010
Size 24,000 sf on 3 floors
Seller J Street Development
Buyer Sierra Club
Sale Date Under Contract
Sale Price $13,200,000 sf
Price PSF $550.00
Parking Ratio 0.56/1,000 sf
Location Similar
Quality Superior
450 H Street office interior
SECTION IV
Tenancy
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STACKING PLAN
DC GOVERNMENT YOUTH SERVICES SUITE 1000 | 2,670 SF | ENDS 1/12
DC GOVERNMENT YOUTH SERVICES SUITE 900 | 2,670 SF | ENDS 1/12
DC GOVERNMENT YOUTH SERVICES SUITE 800 | 2,670 SF | ENDS 1/12
DC GOVERNMENT YOUTH SERVICES SUITE 700 | 2,670 SF | ENDS 1/12
DC GOVERNMENT YOUTH SERVICES SUITE 600 | 2,670 SF | ENDS 1/12
DC GOVERNMENT YOUTH SERVICES SUITE 500 | 2,670 SF | ENDS 1/12
DC GOVERNMENT YOUTH SERVICES SUITE 400 | 2,670 SF | ENDS 1/12
DC GOVERNMENT YOUTH SERVICES SUITE 300 | 2,670 SF | ENDS 1/12
SEE FOREVER FOUNDATIONSUITE 100 | 2,849 SF | ENDS 3/12
DC GOVERNMENT YOUTH SERVICES SUITE 200 | 2,670 SF | ENDS 1/12
SEE FOREVER FOUNDATIONSUITE LL | 3,246 SF | ENDS 3/12
10 2,807
9 2,807
8 2,807
7 2,807
6 2,807
5 2,807
4 2,807
2 2,798
Ground Level 2,927
3 2,807
Lower Level 3,157
FLOOR BOMA SF AREA
TOTAL BOMA SF 31,338
BOMA SF AVAILABLE 137 sf
BOMA SF AVAILABLE 128 sf
BOMA SF AVAILABLE 78 sf
BOMA SF AVAILABLE 137 sf
BOMA SF AVAILABLE 137 sf
BOMA SF AVAILABLE 137 sf
BOMA SF AVAILABLE 137 sf
BOMA SF AVAILABLE 137 sf
BOMA SF AVAILABLE 137 sf
BOMA SF AVAILABLE 137 sf
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TENANT RIGHTS AND ENCUMBRANCE SCHEDULE
The following schedule summarizes tenants’ rights such as renewal and expansion options, cancellation and termination rights, and rights of first refusal.
TENANT NAMEbUILDINGEXPIRATION DATE/TERM
TENANTSQ FTG
TENANTS’ RIGHTS AND/ORENCUMbRANCE
COMMENTS
Van Wagner / Wall to Wall, LLCSuite: N/A—Exterior SignOct-2004 to Sep-2014
N/A Termination Either party has right to terminate this lease with 180 days written notice. Lessee has right (no later than 120 days) to give notice to cancel lease if lessee determines space is not economically viable for the use of a sign.
See Forever FoundationSuite: 0100 and Lower Level Apr-2008 to Mar-2012
6,095 Termination Tenant may terminate the lease in the event its contract with the District of Columbia for an education program is canceled. Tenant has the right to terminate on two separate occasions (1) April 30, 2010, or (2) April 30, 2011. Tenant to pay 6 months base rent should it terminate at the first date or 5 months base rent should it termina-tion on the second date.
The District of ColumbiaSuite: 0200 through 1000 Feb-2002 to Jan-2012
24,030 Renewal One 5-year option to renew at fair market rent with 2.5% increases per lease year. Tenant to notify landlord no earlier than 12 months and no later than 9 months prior to its expiration date. The tenant’s real estate tax base stop amount remains the same.
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TENANT DESCRIPTIONS
Below is a brief description of the Property’s entire tenant roster.
THE DISTRICT OF COLUMBIA (Department of Human Services Youth Services Division)
The District of Columbia utilizes nine contiguous floors in the subject Property for its Department of Human Services Youth Services Division. The tenant uses the leased space for general office purposes (and for purposes incident and ancillary thereto as well). Because this agency of the DC Government works with trouble youths who frequent the building, it is their preference to be in a single tenant building. Thus this building is ideally suited for the tenant making a renewal of the lease highly likely. The DC Government enjoys an investment grade credit rating from all three rating agencies.
24,030 SF•80% of NRA•Exp 01/2012•
SEE FOREVER FOUNDATIONwww.seeforever.org
6,095 SF•20% of NRA•Exp 03/2012•
The See Forever Foundation leases 3,246 square feet in the lower level of the building and 2,849 square feet on the first floor. The See Forever Foundation is a 501c(3) non-profit District of Columbia corporation that leases space in the building in connection with a contract the tenant has with the District of Columbia (“Contract DCJZ-2007-R-0002 Education Program for Committed Male Youth at the Oak Hill Youth Center”). The See Forever Foundation works closely with the anchor tenant and needs to be housed in the same facility.
VAN WAGNER/WALL TO WALL, LLCwww.vanwagner.com
50'x50' area on west wall•Expiration 09/2014•
Van Wagner/Wall to Wall, LLC is an advertising company that leases space on the exterior wall of the building. The tenant leases a 50’ x 50’ space on the exterior west wall of the building to display corporate sponsored murals for third party advertisers.
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RENT ROLL SUMMARY
TENANT NAMESUITE NUMBERExPIRATION DATE/TERM
TENANTSQ. FTG*
-------ANNUAL RENTAL RATES------- REIMBURSEMENTSBY STOP AMOUNT(TAx/OPER ExP)
TIS LCS COMMENTSPSFANNUAL
RENT CHANGESON TO (PSF)
See Forever Foundation $29.36 Apr-2010 $30.24 BY08 ($156,622/$283,961)
- - Tenant may terminate if its contract with the DC Government is canceled.
Tenant may terminate effective on either:(1) April 30, 2010, with 6 mos rent penalty, or(2) April 30, 2011, with 5 mos rent penalty.
Suite: LL-1 & 0100 6,095 $178,949 Apr-2011 $31.14
Apr-2008 to Mar-2012
District of Columbia(Youth Services) Suite: 0200–1000
$39.21 Feb-2010 $40.19 BY02 ($15,232 / $203,183)
- - Tenant has one 5-year renewal at fair market value with 2.5% annual escalations. Tenant's BY Stop for taxes remains the same. 3-broker method determines FMV.
Tenant also pays $1,500 / month for parking.
Tenant has the sole exclusive rights to the parking garage.
Tenant occupies floors 2 - 10; 2,670 SF each.
24,030 $942,216 Feb-2011 $41.20
Feb-2002 to Jan-2012
*Upon rollover of each tenant's lease, each suite's square footage is remeasured to the February 2009 BOMA measurements.
View from roof top at 450 H Street
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SECTION V
Financial Analysis
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CASH FLOW PROJECTION
FOR THE YEARS ENDINGYEAR 1
PSFYEAR 1
MAR-2010YEAR 2
MAR- 2011YEAR 3
MAR- 2012YEAR 4
MAR- 2013YEAR 5
MAR- 2014YEAR 6
MAR- 2015YEAR 7
MAR- 2016YEAR 8
MAR- 2017YEAR 9
MAR- 2018YEAR 10
MAR- 2019YEAR 11
MAR-2020
POTENTIAL GROSS REVENUE
bASE RENTAL REVENUE $35.90 $1,125,093 $1,154,126 $1,202,374 $1,339,305 $1,378,432 $1,419,781 $1,462,377 $1,506,253 $1,587,314 $1,633,707 $1,682,719
AbSORPTION & TURNOVER VACANCY (93,773) (35,206) (108,708) (40,813)
__________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________
SCHEDULED bASE RENTAL REVENUE $35.90 1,125,093 1,154,126 1,108,601 1,304,099 1,378,432 1,419,781 1,462,377 1,397,545 1,546,501 1,633,707 1,682,719
EXPENSE REIMbURSEMENT REVENUE $5.09 159,457 170,366 150,950 3,917 19,175 33,333 48,275 58,338 6,881 22,249 38,704
SIGNAGE INC (VAN WGR, 9/14) $4.12 129,082 132,234 135,481 138,826 142,271 145,819 150,193 154,700 159,340 164,120 169,044
PARKING INCOME (1/12) $0.57 18,000 18,000 18,000 18,540 19,096 19,669 20,259 20,867 21,493 22,138 22,802
__________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________
TOTAL POTENTIAL GROSS REVENUE $45.68 1,431,632 1,474,726 1,413,032 1,465,382 1,558,974 1,618,602 1,681,104 1,631,450 1,734,215 1,842,214 1,913,269
GENERAL VACANCY (0%, 0%, 3% …) (9,812) (46,769) (48,558) (50,433) (12,438) (55,266) (57,398)
__________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________
EFFECTIVE GROSS REVENUE $45.68 1,431,632 1,474,726 1,413,032 1,455,570 1,512,205 1,570,044 1,630,671 1,631,450 1,721,777 1,786,948 1,855,871
__________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________
OPERATING ExPENSES
MANAGEMENT FEES (2%) $0.91 28,633 29,495 28,261 29,111 30,244 31,401 32,613 32,629 34,436 35,739 37,117
CLEANING COSTS $1.48 46,419 47,812 49,246 50,723 52,245 53,812 55,427 57,090 58,802 60,566 62,383
UTILITIES $2.34 73,369 75,570 77,837 80,172 82,577 85,055 87,606 90,235 92,942 95,730 98,602
REPAIRS & MAINTENANCE $0.54 17,067 17,579 18,106 18,650 19,209 19,785 20,379 20,990 21,620 22,269 22,937
CONTRACT SERVICES $0.96 30,231 31,138 32,072 33,034 34,025 35,046 36,097 37,180 38,296 39,445 40,628
PERSONNEL $0.44 13,784 14,198 14,623 15,062 15,514 15,979 16,459 16,953 17,461 17,985 18,525
INSURANCE $0.54 16,775 17,278 17,797 18,330 18,880 19,447 20,030 20,631 21,250 21,888 22,544
TAXES $5.84 183,137 188,719 194,381 200,212 206,219 212,405 218,778 225,341 232,101 239,064 246,236
ADMINISTRATIVE (REIMb) $0.31 9,563 9,850 10,145 10,450 10,763 11,086 11,419 11,761 12,114 12,478 12,852
JEMAL'S LIGGGINS PYMNT (NON-REIM) $2.06 64,541 66,117 67,741 69,413 71,135 72,909 24,912
__________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________
TOTAL OPERATING ExPENSES $15.43 483,519 497,756 510,209 525,157 540,811 556,925 523,720 512,810 529,022 545,164 561,824
__________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________
NET OPERATING INCOME $30.25 948,113 976,970 902,823 930,413 971,394 1,013,119 1,106,951 1,118,640 1,192,755 1,241,784 1,294,047
__________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________
LEASING & CAPITAL COSTS
TENANT IMPROVEMENTS 187,547 62,169 296,010
LEASING COMMISSIONS 191,173 39,251 273,778
CAPITAL EXPENDITURES $0.24 7,531 7,757 8,044 8,561 8,818 9,082 9,355 9,635 9,925 10,222 10,529
__________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________
TOTAL LEASING & CAPITAL COSTS $0.24 7,531 7,757 386,764 109,981 8,818 9,082 9,355 9,635 579,713 10,222 10,529
__________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________
CASH FLOW BEFORE DEBT SERVICE $30.01 940,582 969,213 516,059 820,432 962,576 1,004,037 1,097,596 1,109,005 613,042 1,231,562 1,283,518
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ARGUS ASSUMPTIONSArgus Version: Argus Valuations-DCF (v14.0)
General Assumptions
ANALYSIS START April 1, 2009
ANALYSIS BASIS Fiscal Year (FY End March 31)
ANALYSIS PERIOD 10 Years
BUILDING AREA FLOOR IN-PLACE SQ. FTG.1 BOMA SQ. FTG.2
Lower Level 3,246 SF 3,157 BOMA SF
Floor 1 2,849 SF 2,927 BOMA SF
Floors 2 –10 24,030 SF 25,254 BOMA SF
Total 30,125 SF 31,338 BOMA SF
1In-place square footage represents the sum of all the in-place leases.2BOMA square footage represents the building's area in accordance with BOMA measurements dated February 2009. (see Appendix)
RENEWAL PROBABILITY & DOWNTIME RENEWAL PROB. DOWNTIME WEIGHTED AVG
See Forever Foundation 75% 9 mos. 2.25 mos.
DC Government 90% 9 mos. 0.10 mos.
INFLATION RATES
CPI & General Inflation 3.0%
Market Rent Growth 3.0%
LEASE TERMS & ANNUAL RENT ESCALATIONS
Lease Terms (All Tenants) 5 years
Lease-Year Escalations 3% per annum
RENT ABATEMENT None
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Revenue Assumptions
MARKET RENT RATES
YEAR 1 RECOVERY DESCRIPTION
Office (Lower Level)
$26.00 psf, FS Full Service; tenants reimburse landlord for all operating and tax expenses that exceed their base year stop amount.
Office (Floor 1)
$38.00 psf, FS Full Service; tenants reimburse landlord for all operating and tax expenses that exceed their base year stop amount.
Office (Floor 2 – 10)
$42.00 psf, FS Full Service; tenants reimburse landlord for all operating and tax expenses that exceed their base year stop amount.
REIMbURSEMENT REVENUE
Office: All In-Place & Market Office Leases are structured as Full Service Leases. Tenants pay their prorata share of taxes and operating expenses that exceed their base year stop amounts.
MISCELLANEOUS INCOME
YEAR 1 COMMENTS
Signage Income
$79,601 Tenant pays minimum base rent, plus, 50% of net revenues that exceed minimum base rent.
Signage Income represents income from a 50’ x 50’ exterior sign affixed to the building’s west wall. The signage area is leased to Van Wagner through September 2014. Year 1 income represents $24,000 in minimum base rent, plus, $105,082 in percent rent. Percent rent represents the prior lease year's actual percent rent. Minimum base rent remains flat through the lease term; percent rent increases annually by the General Inflation Rate. Upon the lease’s expiration, both minimum base rent and percent rent increase annually by the General Inflation Rate
Parking Income
$18,000 Annually through 01/31/2012 (DC Government)
Parking Income, based on 5 spaces represents income from DC Government ($300/space/month) for the exclusive use of the building’s parking garage. The rate is flat through January 2012, then increases by the General Inflation Rate thereafter.
VACANCY LOSS
PERIOD LOSS FACTOR
Year 1–End 3%
The vacancy loss factor does not take effect until the expiration of the DC Government and See Forever Foundation leases.
Operating Expenses
ExPENSESOperating expenses, except for Management Fees and Taxes have been underwritten based on the Owner’s 2009 budget, increased 0.75% to account for inflation (January through March). Management Fees are a percentage of Effective Gross Income as outlined below. Taxes are comprised of (i) Real Estate Taxes and (ii) a Business Improvement District (BID) Tax.
Year 1 Real Estate Taxes represent the Property’s 2009 real estate assessment, times the 2008 Tax Rate(s). Effective Year 2 Real Estate Taxes increase annually by the General Inflation Rate. Year 1’s BID Tax reflects a 3% increase to the Property’s 2008 actual expense, then increases annually by the General Inflation Rate effective Year 2 of the analysis.
EXPENSES (YEAR 1) PSF AMOUNT
Management Fees (2%) $0.91 28,633
Cleaning 1.48 46,419
Utilities 2.34 73,369
Repair & Maintenance 0.54 17,067
Contract Services 0.96 30,231
Personnel 0.44 13,784
Insurance 0.54 16,775
Taxes 5.84 183,137
Administrative (reimb) 0.31 9,563
Jemal's Liggins Pymt (non-reimb) 2.06 64,541
Total Operating Expenses $15.43 $483.519
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REAL ESTATE TAxESReal estate taxes in the District of Columbia are levied on a Tax Year basis (October 1 to September 30) and are paid in two installments no later than March 31 and September 15. The District of Columbia assesses properties annually.
450 H Street, NW’s assessment is based on its fair market value as of January 1 of the previous tax year (i.e. Tax Year 2009 represents the assessment effective January 1, 2008 with two equal installments paid in March and September 2009). The tax rate is expressed as the tax per $100 of equalized assessed value.
Effective with Tax Year 2009 (October 2008 – September 2009), the District of Columbia has established a two-tier tax rate calculation to determine commercial property taxes. Currently, the first $3,000,000 of assessed value is taxed at a Tax Rate of 1.65 per $100 of assessed value. The assessed value greater than $3,000,000 is taxed at a Tax Rate of 1.85 per $100 of assessed value. Prior to this two-tier tax rate methodology, a single tax rate was used.
Below is a table showing the Property’s historical and projected tax liabilities for Tax Year 2009 (payable March 2009 and September 2009).
REAL ESTATE TAX ANALYSIS
TAx YEAR (PERIOD)ASSESSED VALUES:
ASSESSED AS OFTAx RATE TOTAL
TAx DUE PAYABLELAND IMPROVEMENTS TOTAL TIER I1 TIER II2
TY 2008 (10/07–09/08) $3,067,200 $5,109,800 $8,177,000 01/2007 n/a 1.85 $151,275 3/08 & 9/08
TY 20093 (10/08– 09/09) $3,527,280 $6,407,720 $9,935,000 01/2008 1.65 1.85 $177,798 3/09 & 9/09
TY 20104 (10/09– 09/10) $3,633,098 $6,599,951 $10,233,050 01/2009 1.65 1.85 $183,311 3/10 & 9/101 Tier I Tax Rate is used to calculate the taxes due on the first $3,000,000 of Assessed Value ($0 – $3,000,000).2 Tier II Tax Rate is used to calculate the taxes due on the remaining portion of the Assessed Value ($3,000,001+).3 Tax Year 2009 represents the actual Assessed Values stated on The District of Columbia’s website. See Exhibit C, Tax Assessment & Account Summary, in Section VII, Appendix for additional information.4 Tax Year 2010 represents assumed Assessed Values and Tax Rates.
PROFORMAFor purposes of the proforma, Taxes include Real Estate Taxes and Business Improvement District (BID) Taxes. Below is a summary of the calculations used in the proforma.
FY 1 OF PROFORMA PAID AMOUNT DESCRIPTION OF TAx
BID Taxes Apr 2009 $1,291 1st semi-annual payment. 2008’s actual increased 3.0%.
Real Estate Taxes Sep 2009 $88,899 2nd Half Installment of TY 2009. See above Real Estate Tax table.
BID Taxes Oct 2009 $1,291 2nd semi-annual payment. 2008’s actual increased 3.0%.
Real Estate Taxes Mar 2010 $91,655 1st Half Installment of TY 2009. See above Real Estate Tax table.
FY 2 OF PROFORMA PAID AMOUNT DESCRIPTION OF TAx
BID Taxes Apr 2010 $1,330 1st semi-annual payment. Prior year increased 3.0%.
Real Estate Taxes Sep 2010 $91,655 2nd Half Installment of TY 2010. Prior year increased 3.0%.
BID Taxes Oct 2010 $1,330 2nd semi-annual payment. Prior year increased 3.0%.
Real Estate Taxes Mar 2011 $94,405 1st Half Installment of TY 2010. Prior year increased 3.0%.
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Capital Expenditures
TENANT IMPROVEMENTS
NEW LEASE RENEWAL
Office (Lower Level) $20.00 psf $5.00 psf
Office (Floor 1) $25.00 psf $5.00 psf
Office (Floor 2–10) $25.00 psf $5.00 psf
Tenant Improvements increase annually by the General Inflation Rate
LEASING COMMISSIONS
NEW LEASE RENEWAL
5% 3%
CAPITAL EXPENSES (CAPITAL RESERVE)
PERIOD AMOUNT
FYs 1–10 $0.25 PSF
Capital Reserve increases annually by the General Inflation Rate.
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St. Mary's Catholic Church
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SECTION VII
Appendix
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ExHIBIT A: LOAN SUMMARY
Borrower: BREOF 450H REO LLC
Lender (original): CIBC INC.
Loan Servicer: Midland Loan Services
Current Noteholder: Wells Fargo Bank, N.A., as Trustee for the Registered Holders of J.P. Morgan Chase Commercial Mortgage Securities Corp., Commercial Mortgage Pass-Through Certificates, Series 2002-CIBC4
Note Date: April 10, 2002
Loan Amount: $4,875,000 (balance as of January 1, 2009 $4,514,915.87)
Commencement Date: June 1, 2002 (1st payment date)
Prepayment Date: May 1, 2012
Maturity Date: May 1, 2032
PAYMENT SCHEDULE
PERIOD INTEREST RATE
AMORTIZA-TION
MONTHLY PAYMENT
06/01/2002–05/01/2012 7.73% 30-Years $34,857.75
06/01/2012–05/01/2032 TBD 1 30-Years TBD 1
1 Should the loan not be prepaid 05/01/2012, then effective 06/01/2012 the Interest Rate would change to the greater of (i) 9.73% or (ii) Treasuries + 2%.
PREPAYMENT
PERIOD PREPAYMENT CONSIDERATION
06/01/2002–05/01/2012 Defeasance
06/01/2012–05/01/2032 Prepayment Allowed
DEFEASANCE: The greater of 1% or yield maintenance.
NON-RECOURSE CARVE OUTSBREOF LLC assumed the Indemnity and Guaranty Agreement dated 04/10/2002.
The Indemnity and Guaranty Agreement provides for non-recourse provisions such as fraud and other acts of intentional misrepresentation, intentional and negligent acts of environmental harm, and bankruptcy. Assuming Borrower will be required to provide an entity in addition to the borrower which must assume liability under the non-recourse carve outs. LOAN ASSUMPTION Loan may be assumed subject to lender’s approval. Loan Assumption Fee to be paid by Borrower is 1% of Loan balance plus $2,500. There is no limit to the number of loan assumptions.
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ExHIBIT B: LEASE ABSTRACTS
Tenant: Van Wagner/Wall to Wall, LLC
Lease Date: October 1, 2004
Rentable Area : Exterior Wall of building (west elevation) measuring approximately 50’ by 50’
Lease Term: 10 years
Commencement Date: October 1, 2004
Expiration: September 30, 2014
Special Note: As part of the purchase and sale agreement dated January 21, 2005, the building owner pays to Jemal’s Liggins L.L.C. 50% of the amounts received for the above referenced exterior wall sign. The building owner shall continue to pay said amount to Jemal’s Liggins through the earlier of: (i) February 27, 2015, or (ii) an aggregate amount of $500,000 has been paid. This provision transfers to the new building owner in the event of a sale.
Type: Gross Lease; however, tenant responsible for electricity and other utility costs.
Option to Renew: None.
Cancellation Option Either party has right to terminate this lease with 180 days written notice. Lessee has right (no later than 120 days) to give notice to cancel lease if lessee determines space is not economically viable for the use of a sign.
Right of First Option: None.
Security Deposit: None.
Comments: Exterior surfaces (“sign space”) measuring approximately 50’ wide by 50’ high at the west exterior wall. It is used for sign space to display corporate sponsored murals for third party advertisers
Tenant: The See Forever Foundation
Lease Date: March 31, 2008
Suite: 100 and Lower Level
Rentable Area:
Ste LL-1 3,246 square feet
Ste 100 2,849 square feet
Total 6,095 square feet
Proportionate Share:
Real Estate Taxes 20.25% Operating Expenses 20.25%
Lease Term: 4 years
Commencement Date: April 1, 2008
Expiration: March 31, 2012
Base Rent:
TERM $ / PSF MONTHLY ANNUAL
04/01/09–03/31/10 $29.36 $14,912.43 $178,949.16
04/01/10–03/31/11 $30.24 $15,359.40 $184,312.80
04/01/11–03/31/12 $31.14 $15,816.53 $189,798.36
Type: Full Service with Base Year Stop
RENT
TERM $/PSF MONTHLY ANNUAL
BASE RENT
10/01/04–09/30/14 n/a $2,000.00 $24,000.00
% RENT 10/01/04–09/30/14 50% of net advertising income that exceeds the base rent amount each lease year; paid quarterly and reconciled annually.
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Recoveries: Tenant pays its prorate share of costs that exceed its Base Year Stop:
Real Estate Taxes Base Year 2008 $156,622
Operating Expenses Base Year 2008 $283,961
Operating Expenses may be grossed up to 95% occupancy.
Option to Renew: None.
Cancellation Option: Tenant may terminate the lease in the event its contract with the District of Columbia for an education program is canceled. Tenant may terminate effective on either (1) April 30, 2010, or (2) April 30, 2011. Tenant to pay 6 months base rent should it terminate at the first date or 5 months base rent should it termination on the second date.
Right of First Option: None.
Security Deposit: $28,951.26
Comments: Relocation of Tenant: Landlord has right to relocate tenant in the other space in the building with at least as much rentable space as in the signed lease. Landlord responsible to pay for improvements.
Tenant: The District of Columbia
Lease Date: July 26, 2001
Suite: Floors 2 – 10
Rentable Area: 24,030 square feet (2,670 square feet per floor)
Proportionate Share:
Real Estate Taxes 77.46% Operating Expenses 77.46%
Lease Term: 10 years
Commencement Date: February 1, 2002
Expiration: January 31, 2012Base Rent:
TERM $ / PSF MONTHLY ANNUAL
02/01/09–01/31/10 $39.21 $78,520.91 $942,250.89
02/01/10–01/31/11 $40.19 $80,483.93 $965,807.16
02/01/11–01/31/12 $41.20 $82,496.03 $989,952.34
Type: Full Service
Recoveries: Tenant pays its prorate share of costs that exceed its Base Year Stop:
Real Estate Taxes Base Year 2002 $15,232
Operating Expenses Base Year 2002 $203,183
Utilities and cleaning may be grossed up to 95% occupancy.
Option to Renew: One 5-year option to renew at fair market rent with 2.5% increases per lease year. Tenant to notify landlord no earlier than 12 months and no later than 9 months prior to its expiration date. The tenant’s real estate tax base stop amount remains the same. Fair market rent shall be reduced by any market concessions. Fair market rental determined by 3 broker method should landlord and tenant fail to agree.
Cancellation Option: None.
Right of First Option: None.
Security Deposit: None.
Comments: Parking: Landlord to provide tenant the sole and exclusive use of the underground parking located at the building under a separate agreement. Appropriation Funding: The lease is subject to annually appropriation funding.
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ExHIBIT C: BOMA MEASUREMENTS
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ExHIBIT D: TAx ASSESSMENT & ACCOUNT SUMMARY
The following tax assessment can be viewed on the internet via the District of Columbia's website at www.dc.gov.
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ExHIBIT D: TAx ASSESSMENT & ACCOUNT SUMMARY
TRANSWESTERN (including their affiliates, subsidiaries, related parties, successors, and assigns, hereinafter referred to singly and collectively as “Transwestern” or “Agent”) have been engaged as the exclusive agent by bREOF Aquistions, LLC, (the “Owner” or “Seller”) for the sale of 450 H Street, NW, an 10-story multi-tenant office building located in Washington, DC (the “Property”).
The Property is being offered for sale in an “as-is, where-is” condition and the Seller and the Agent make no representations or warranties as to the accuracy of the information contained in this Offering Memorandum. The enclosed materials include highly confidential information and are being furnished solely for the purpose of review by prospective purchasers of the interest described herein. Neither the enclosed materials, nor any information contained herein, are to be used for any other purpose, or made available to any other person without the express written consent of the Seller. Each recipient, as a prerequisite to receiving the enclosed information, should be registered with Transwestern Commercial Services as a “Registered Potential Investor” or as “buyer’s Agent” for an identified “Registered Potential Investor”. The use of this Offering Memorandum and the information provided herein, is subject to the terms, provisions and limitations of the Confidentiality Agreement furnished by the Agent prior to delivery of this Offering Memorandum. The enclosed materials are being provided solely to facilitate the prospective investor’s due diligence for which it shall be fully and solely responsible. The material contained herein is based on information and sources deemed to be reliable, but no representation or warranty, express or implied, is being made by the Agent or the Seller or any of their respective representatives, affiliates, officers, employees, shareholders, partners and directors, as to the accuracy or completeness of the information contained herein. Summaries contained herein of any legal or other documents are not intended to be comprehensive statements of the terms of such documents, but rather only outlines of some of the principal provisions contained therein. Neither the Agent or the Seller shall have any liability whatsoever for the accuracy or completeness of the information contained herein, or any other written or oral communications, or information transmitted, or made available, or any action taken, or decision made by the recipient with respect to the Property. Interested parties are to make their own investigations, projections and conclusions without reliance upon the material contained herein. The Seller reserves the right, at its sole and absolute discretion, to withdraw the Property from being marketed for sale at any time and for any reason. The Seller and the Agent each expressly reserve the right, at their sole and absolute discretion, to reject any and all expressions of interest or offers regarding the Property and/or to terminate discussions with any entity at any time, with or without notice. This Offering Memorandum is made subject to omissions, corrections or errors, change of price or other terms, prior sale or withdrawal from the market without notice. The Agent is not authorized to make any representations or agreements on behalf of the Seller. The Seller shall have no legal commitment or obligation to any interested party reviewing the enclosed materials, performing additional investigation and/or making an offer to purchase the Property unless and until a binding written agreement for the purchase of the Property has been fully executed, delivered and approved by the Seller and any conditions to the Seller’s obligations thereunder have been satisfied or waived. by taking possession of and reviewing the information contained herein, the recipient agrees that (a) the enclosed materials and their contents are of a highly confidential nature and will be held and treated in the strictest confidence and shall be returned to the Agent or the Seller promptly upon request; and (b) the recipient shall not contact employees or tenants of the Property directly or indirectly regarding any aspect of the enclosed materials or the Property without the prior written approval of the Seller or the Agent; and (c) no portion of the enclosed materials may be copied or otherwise reproduced without the prior written authorization of the Seller or the Agent or as otherwise provided in the Confidentiality Agreement executed and delivered by the recipient(s) to Transwestern. The Seller will be responsible for any commission due the Agent in connection with a sale of the Property. Each prospective purchaser will be responsible for any claims for commissions by any other broker or agent in connection with a sale of the Property if such claims arise from acts of such prospective purchaser or its broker/agent. Any buyer’s Agent must provide a registration signed by the prospective investor acknowledging said agent’s authority to act on its behalf. If you have no interest in the Property at this time, please return this Offering Memorandum to the address below if it is a hard copy or delete the file if it is an electronic copy:TranswesternInstitutional Commercial Group1667 K Street, NW, Suite 300Washington, DC 20006 Attention: Gerald P. Trainor, Executive Managing Director
Licensed Real Estate broker’s Disclosure Environmental Matters All parties to real estate transactions should be aware of the health liability and economic impact of environmental factors on real estate. Transwestern does not conduct investigations or analysis of environmental matters, and accordingly, urges its clients to retain qualified environmental professionals to determine whether hazardous or toxic wastes or substances (such as asbestos, PCbs and other contaminant or petrol-chemical products stored in underground tanks) or other undesirable materials or conditions are present in the Property, and if so, whether any health danger or other liability exists. Such substances may have been used in the construction or operation of the buildings or may be present as a result of the previous activities at a property. Depending upon past, current and proposed uses of the Property, it may be prudent to retain an environmental expert to conduct a site investigation and/or building inspection.
Various federal, state and local authorities have enacted laws and regulations dealing with the use, storage, handling, removal, transport and disposal of toxic or hazardous wastes and substances. If hazardous or toxic substances exist or are contemplated to be used at a property, special governmental approvals or permits may be required. In addition, the cost of removal and disposal of such materials may be substantial. Consequently, legal counsel and technical experts should be consulted where these substances are or may be present.
Transwestern makes no representation and assumes no obligation regarding the presence or absence of toxic or hazardous waste or substances or other undesirable materials on or about any property ultimately sold. It is solely the responsibility of the potential investor to conduct investigations to determine the presence of such materials.
Radon Gas Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities may present health risks to persons who are exposed to it over time. Additional information regarding radon and radon testing may be obtained from your county public health unit.
The Americans with Disabilities Act The Americans with Disabilities Act is intended to make many business establishments equally accessible to persons with a variety of disabilities; modifications to real property may be required. State and local laws also may mandate changes. Transwestern is not qualified to advise you as to what, if any, changes may be required now, or in the future. Prospective investors should consult their attorneys and qualified design professionals for information regarding these matters. Legal or Tax Matters With respect to legal or tax issues pertaining to the acquisition and/or ownership of the Property, Transwestern is not qualified to provide advice on such matters. Prospective purchasers should consult with their own advisors on these and other related matters. The recipient of this Offering Memorandum shall not rely on any information contained herein with respect to these or any other matters. The Seller and the Agent make no representation or warranties on any such matters.
GERALD P. TRAINOR202.775.7091
JAMES V. CARDELLICCHIO202.775.7094
ROBERT J. FILLEY202.775.7045
STEPHEN REPP 202.775.7046
ANDREW J. CZEKAJ, III202.775.7093
1667 K STREET, NW | SUITE 300 | WASHINGTON, DC | 20006 | 202.775.7000 | www.transwestern-icg.net