When the owners of 2550 M St. NW, a West End office building, put the property up for sale, it seemed like a sure thing.
A top selling point for the 207,000-square-foot building was its reliability as a long-term source of rental income. Under the headline “STABLE CASH FLOW FOR 18 YEARS,” brokers at HFF issued a sales flier advertising that the venerable law firm Patton Boggs had recently agreed to a lease extension that would keep the firm in the building through 2032, another 18 years. Patton Boggs’s lease “proves the tenant’s long-term commitment to the location,” the flier said.
Such well-leased Washington office buildings have been attracting top dollar from foreign investors in recent years and, true to form, Mirae Asset Global Investments, an arm of a South Korean financial giant, paid $156 million for 2550 M St. in February.
The sale wrapped up as Patton Boggs’s future grew more cloudy.
Founded in 1962, Patton Boggs is one of Washington’s most storied and profitable legal and lobbying firms, having earned $45.8 million in lobbying fees in 2012. But the firm is going through a transition. Revenue fell 18 percent between 2011 and 2013, and since 2011, the firm has shrunk about 21 percent from 480 lawyers to 380. It will likely contract even more, going from 83 equity partners as of February to about 70 by year’s end. The law firm plans to close its office in Newark, N.J., and relocate the 24 lawyers there to New York or Florham Park, N.J.
As it trims, Patton Boggs has considered merging with other firms. Last year, it discussed joining Texas-based law firm Locke Lord, and more recently, it disclosed discussions about joining Squire Sanders, a much larger global law firm with roots in Cleveland. Earlier this month, Patton Boggs hired financial advisers, including Zolfo Cooper, a firm experienced in helping firms get their business on stronger footing.
Either the continued shrinkage of Patton Boggs or its merger with another firm could spell trouble for its new landlord at 2550 M St.
Mirae, which declined to comment through a spokesman, paid about $753 per square foot for the building, well above what buyers are typically willing to pay for buildings that need new tenants, according to sales experts. Vacancies have become harder to fill as the federal government and private firms cut back on its office needs.
“Clearly, when they looked at the deal, they were expecting the tenant for the long-term,” said John Kevill, managing director of the brokerage firm Eastdil Secured.
Kevill and other experts said that although they lacked any specific knowledge of Mirae’s thinking, the investor was likely aware of the associated risks. Records show it closed on the deal on Feb. 21, well after Patton Boggs began publicly talking about its plans to cut back.
Overseas investors have shown a healthy appetite for Washington office buildings, despite the pullback in federal spending and other signs of weakness in the local economy. Mirae is one of a slew of buyers from countries including Kuwait, Norway, Germany, Japan and Canada that outbid domestic buyers for well-leased Washington office buildings.
“You’re seeing offshore investors and in this case Korean investors make bets on stable buildings in well-known locations and clearly the long-term occupancy of Patton Boggs and the blue chip nature of the law firm qualified as that,” Kevill said.
A Patton Boggs spokesman did not respond to an e-mail and phone calls seeking comment.
Capital Business staff reporter Catherine Ho contributed to this story.