Loudoun County's Dulles Corridor may have an abundance of vacant office buildings, but that isn't stopping one local developer from moving ahead with plans to build one more.
The Charles E. Smith Cos. said yesterday it will begin construction next spring of a $27 million office building for E-Systems Inc., a Dallas-based Fortune 500 defense contractor. E-Systems wanted a custom-built home near the future Loudoun campus of George Washington University at University Center, a Smith corporate park, executives of the two companies said.
The agreement would make E-Systems the first corporate tenant at University Center, where Smith plans eventually to develop 826 homes and 7 million square feet of commercial space -- almost triple the amount of commercial space currently available for lease in Loudoun County, according to Barnes, Morris & Pardoe Inc., a brokerage firm. E-Systems plans to lease the entire 210,000-square-foot building -- space for 700 to 800 workers -- with options to lease more.
Smith Senior Vice President Al Neely called the project "a shining star in all this darkness." He said E-Systems confirmed that technology companies will move to the Loudoun County development to be close to GW's classes and laboratories, at the intersection of Routes 7 and 28, where developers have been transforming farm land into office parks and planned communities.
But the announcement was illuminating for other reasons as well.
E-Systems could become another example of a phenomenon real estate developers call "musical tenants," in which businesses move from one building to another without expanding. Musical tenants can create leasing activity in a sluggish real estate market, but it poses problems for the developers who lose the tenants. This kind of movement has accelerated as struggling developers have cut their rents.
Talbot S. Huff, vice president and general manager of E-Systems, said it remains unclear whether his company will add 800 employees by the time the Loudoun building is completed in 1992 or simply move employees from two other locations in Fairfax County. That will depend on economic conditions, he said.
E-Systems produces computer software and equipment for intelligence, surveillance and reconnaissance. Although many local defense contractors have been cutting back, Huff said his company will have a larger backlog of government work to be done at the end of this year than last year.
Smith, which calls itself the largest development and property management company in the Washington area, is best known for its development of Crystal City, where its tenants include the U.S. Navy. Smith has a lot riding on the Navy's ongoing search for new office space.
The company has a large stake in the Dulles corridor, where it is also developing a mixed use project called Worldgate. Smith gave GW 50 acres at University Center, and GW will share in any profits from the development. The development of the GW campus is expected to follow the pace of commercial development at the project.
Last month, Smith completed the first office building at University Center, a 75,000-square-foot building that is 85 percent vacant. That building was built "speculatively," with no specific tenant in mind, and it did not serve E-Systems's needs.
Huff said E-Systems never seriously considered other locations because its main objective was to be close to GW. Nonetheless, real estate brokers said E-Systems's decision to lease custom-built offices underscored another risk for developers trying to lease generic speculative office buildings. Such developers could have difficulty competing if their buildings are out of synch with the priorities of companies now looking for space.