Challenges facing buyers of Bethesda building, weakened market depressed price in federal auction

By Jonathan O'Connell
Monday, August 2, 2010

"Bthzdlvr" has won.

The online auction of an office building in downtown Bethesda ended recently when a joint venture between Rockwood Capital and developer Akridge -- bidding under the moniker "Bthzdlvr" -- took the property for $12.5 million.

Rockwood, a private equity firm based in San Francisco, has long been an investor in Washington real estate, most recently buying the Renaissance Mayflower Hotel in 2007. Akridge, based in the District, specializes in office development.

Akridge spokeswoman Lisa V. Steen said the companies planned to renovate the existing building, at 7550 Wisconsin Ave., into new office space, but declined to comment further. A Rockwood spokesman declined to comment.

The price is far from what the seller, the federal government, had hoped to get. The General Services Administration put the property, a former home to the National Institutes of Health, on the market via auction at the end of April asking for a starting bid of $14 million. The opening bid ended up being $100.

"The timing of our original appraisal was such that the market was very different at the time," said GSA spokesman Michael McGill. Although the 10-story building is within easy walking distance to the Metro station in a choice market, it is 46 years old and badly in need of an upgrade.

After a glitch in the auction process, GSA officials reminded bidders of auction rules stating that the agency had the option of not selling the property at all if it did not receive a price it liked, before the auction finally closed July 21. McGill said that agency real estate consultants "thought that 12.5 was a pretty good offer" and that he expects the deal to finally close in September.

That is still a long shot from the $18 million to $20 million that some experts expected it to fetch. The price was likely driven down in part by the fact that although many uses for the building have been discussed, none appeared easy. The aging building has been vacant for the better part of a decade. If it were torn down, say, to build housing or a hotel on the site, zoning rules would allow it to be replaced only by a much smaller building.

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