First Potomac Realty Trust is in a buying mood

By Jonathan O'Connell
Monday, June 28, 2010

First Potomac Realty Trust is moving to double its real estate holdings in the next three to five years, to $2.5 billion or more.

The publicly traded, Bethesda-based real estate investment trust has an existing portfolio of 12.5 million square feet of office and industrial properties reaching from Baltimore to Norfolk worth about $1.2 billion.

The company stopped making acquisitions toward the end of 2005, sitting on the sidelines during the years when some other firms were making overly aggressive bets.

In the downturn, First Potomac's stock price fell to a low of less than $7 from a peak of more than $31 in the first quarter of 2007, but it has recovered to more than $15, and a stock offering in March raised $91.7 million.

Chairman and chief executive Douglas J. Donatelli said the company will focus on offices, rather than its other specialty, industrial properties, and that with the local economy improving it is time to be aggressive.

"This area is posed for economic recovery," he said. "We see significant job growth over the next three to five years, and we'd like to be in front of that job growth."

The shopping has already begun. At the close of last year, First Potomac acquired a three-building office park, Ashburn Center, that was half empty but that First Potomac quickly leased completely. In April it announced a $13.6 million purchase of an empty 174,000-square-foot building in Oakton, for which it plans a $5 million renovation.

Donatelli said the Oakton building represents the sort of "mis-financed" project -- meaning it was carrying a loan that exceeded the property value -- that could be stabilized and leased. Though First Potomac has specialized in local suburban business parks, he also said he expects the company to acquire its first property in the District shortly.

"There's a big gap today between prices people are willing to pay for stable assets and properties that you can get that need some work," he said. "And we have the ability to add value."

One of the company's analysts, Paul Adornato of BMO Capital Markets, said that Donatelli's goals were realistic given the prices available.

"Right now acquisitions make economic sense because pricing has been more appropriate than it has in the last couple years," he said.

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