This summer Andrew O. Eshelman bid $22.5 million for a 300,000-square-foot warehouse in Landover, half a million dollars over the asking price.
At least half a dozen other investors beat his offer. Just a few years ago, the sale would have drawn hardly anyone.
"I couldn't believe it," said Eshelman, a principal at MGP Real Estate LLC in Bethesda, a small investor that has been buying office buildings and warehouses in the Washington area for two decades.
But the interest it drew is a sign that Prince George's County is changing. For years the county had trouble attracting vibrant retail centers, upscale housing and other amenities that make businesses want to move or expand in a region. As a result, real estate experts say, Prince George's was an also-ran in the region's commercial real estate market. The success of Bowie Town Center shopping center, the appearance of more luxury homes and the fact that real estate still costs considerably less than in other close-in markets has brought more investors here.
"It's losing its stigma of being a tertiary market," said Niel Beggy, a first vice president at the Bethesda office of CB Richard Ellis, one of the largest commercial real estate brokerages in the country. "If you don't need high-profile, glitzy space, you can find vanilla space in Prince George's."
As the District and its closer suburbs boomed because of steady government spending, buyers pushed up the price of office buildings downtown until they are now second in price only to Manhattan. Those pressures have spread to nearer, prosperous suburbs like Bethesda, Tysons Corner and Fairfax.
That means more tenants who might not need the sort of fancy buildings found downtown have moved out to places like Prince George's. The investors have followed them.
Bordered by the District to the south, Montgomery County to the west and Anne Arundel to the east, Prince George's was mostly farmland until the 1950s, when developers started putting up small warehouses along the county line closest to the District.
The northern part of the county, near Route 214, which runs east-west from the District toward Chesapeake Bay, had high-rise offices that sprang up in the 1980s and 1990s and spread along the Capital Beltway, which bisects Route 214. The neighborhood has grown into a 21 million-square-foot commercial market. Though small by the standards of the District or Northern Virginia, it is a start.
Much like neighboring Montgomery County, where contractors set up shop near federal institutions such as the National Institutes of Health in Bethesda and the U.S. Food & Drug Administration in Rockville, contractors and service companies came to Prince George's to be near major agencies. The National Aeronautics and Space Administration is in Greenbelt, the U.S. Census Bureau is in Bowie and Upper Marlboro, and the Agriculture Department is in Beltsville.
Defense contractors such as Lockheed Martin Corp. and Raytheon Co. each have about 200,000 square feet at several places in Greenbelt, Landover and Largo. When the Internal Revenue Service built a 1.2 million-square-foot regional headquarters in New Carrollton at the Beltway and a Metro stop, information technology company Computer Sciences Corp. built a 325,000-square-foot office directly across from it. CSC, of El Segundo, Calif., has a 12-year contract with the IRS.
The building boom in Prince George's is fueled by surprisingly steady job growth. From 2000 to 2003, jobs grew 2.8 percent, faster than the region at 2.4 percent. The District grew 2.1 percent; Montgomery 0.6 percent. Only booming Northern Virginia with its tech companies and defense contractors grew faster, at 3.9 percent.
Developers such as Atlantic Realty Cos. of Tysons Corner, Buchanan Partners LLC of Gaithersburg and others plan to build this year about 251,000 square feet of new offices -- not much compared with the 6 million square feet under construction in Northern Virginia during the second quarter. But two-thirds of the Prince George's space is pre-leased, according to CoStar Group Inc., a Bethesda real estate research company. And that is, of course, a good sign.
Developers said they are also encouraged as parts of the county such as Upper Marlboro transform into upscale neighborhoods of expensive, single-family houses. Median household income, though, still lags the regional average, $55,000 to $65,000, according to the 2000 census.
Not surprisingly, real estate prices have started to jump in Prince George's. In the past two years, the average price per square foot for an office building rose about 20 percent, and in some cases as much as 60 percent, bringing the county closer to its neighbors.
It still looks like a bargain, though, to new investors such as BECO Management Inc. of Rockville, which has 40 properties -- 3 million square feet of office and warehouse space -- in Montgomery, Howard, Fairfax, Baltimore and Anne Arundel counties. This year BECO paid $55 million, or $91 a square foot, for a 600,000-square-foot portfolio of buildings in several one- and two-story office parks in Lanham. It was the largest real estate sale in the first half of the year in the Maryland suburbs, according to Cassidy & Pinkard. Among the tenants in the buildings are computer technology and software companies, doctor's clinics and wholesalers.
Even out-of-town investors are starting to try Prince George's as they find prices too high and competition too crowded in the District and its closer suburbs. Some also worry about a glut of space in nearby Montgomery County's corridor along Interstate 270.
"We've got some out-of-town real estate investment trusts and pension fund money from New York and Boston looking to get into Prince George's for the first time," said Eric Berkman, a senior vice president at Grubb & Ellis who handles investment sales in the Washington region. "People realize that Prince George's has a lot of [steady tenants like the government's General Services Administration], so you can buy buildings with these tenants in them and it's a lot less than in Northern Virginia."
Meritage Properties, a New York investment firm, partnered with Rockville developer Buchanan Partners to pay $40 million last month to MGP for MetroPlex, a 287,000-square-foot office park in New Carrolton that had tenants including Mitre Corp., a Beford, Mass., and McLean-based government contractor; a medical training company; and a large engineering and architectural firm. The price was 30 percent more than what MGP said it had paid for the office park 18 months ago.
New York-based Artery Capital, the investment unit of Bethesda apartment builder Artery Group, paid $20 million 18 months ago for a 223,000-square-foot complex in Greenbelt that houses huge defense contractor Lockheed Martin Corp, the consulting firm Booz Allen Hamilton Inc. of McLean and ITT Industries Inc. of White Plains, N.Y., a defense electronics manufacturer.
"We looked in Prince George's because we saw the prices were going up so much in downtown Washington," Artery Capital President Jon Goldberg said.
Meanwhile, Eshelman, the losing bidder on that warehouse in Lanham, said he has almost stopped bidding on buildings in Montgomery and Fairfax in the past year to focus on Prince George's.
One reason: At the end of last year, he sold the mostly empty Germantown campus of Orbital Science Corp., a satellite-maker, in Montgomery County, to a California pension fund for $22 million. "I considered that a pretty good price, given that it was nearly 100 percent vacant," Eshelman said. But he didn't make much of a profit; he bought the building for about the same price three years ago, and the market along Montgomery's high-tech Interstate 270 corridor has been "very anemic," he said.
Eshelman, 49, the son of an animal feed salesman in Lancaster, Pa., was a history and biology major at Stanford University, where he graduated in 1977. After graduating from Georgetown University's law school in 1982, he practiced for four years at a downtown firm working on real estate deals. He left to become a broker for Cassidy & Pinkard, one of the largest real estate companies in the region, from 1986 until 1990. He then worked on a team to help acquire the land, financing and build the Dulles Toll Road.
In 1993 he started MGP with two partners. It built some commercial space in the 1990s but is now focused on buying real estate. In the last decade, the four-person company has bought and developed about 8 million square feet of office, retail and warehouse space in the region. MGP gets about 90 percent of its money from Wall Street, including such New York-based firms as DRA Advisors LLC, a New York real estate investment company, and investment banking giants Lehman Brothers Inc. and Morgan Stanley & Co. The rest comes from local doctors, lawyers and other investors.
MGP sold three sizable office buildings it owned in downtown Washington in the late 1990s and early 2000, and Eshelman now laughs about the deals, saying perhaps he should have held on to them because office buildings have turned around since and are reaping high prices. Some of the money from those sales and others have gone into deals in Prince George's, where the company now owns 800,000 square feet.
Eshelman said he plans to spend $100 million to $150 million in the next year on offices in the region, a large amount of that in Prince George's.
"There's still leasing demand there and the investment values haven't caught up," he said. "There's deals to be had."