- The Washington Times - Tuesday, December 12, 2006

First Potomac Realty Trust reached 10.4 million square feet of commercial space under management in November when it added three new properties to its holdings.

The trust says it controls 2 percent of the Washington area’s industrial and flex property and sees plenty of room for growth. Flex refers to buildings that can be used for a combination of industrial, office or retail space.

“We continue to see attractive acquisition opportunities and have begun developing a few buildings on land that we had previously acquired,” said Barry H. Bass, First Potomac’s chief financial officer.

The company focuses on a Mid-Atlantic market that stretches from Baltimore in the north to Norfolk in the south.

The three buildings acquired in the past month are valued at a total of $41.9 million.

They are located in Owings Mills, Md.; Norfolk and Richmond.

Despite a brisk pace of acquisitions, some economic trends are creating suspicions that the collapse of the housing boom in the past year could creep into the commercial real estate market soon.

Investors continue to pour huge amounts of money into commercial real estate because of the high returns they have received in the past five years, much of it financed with debt.

Meanwhile, the nation’s economy is slowing, from 5.6 percent growth in the first three months of this year, to 2.6 percent in the second and 2.2 percent in the third, according to the U.S. Commerce Department.

If the economic slowdown continues to the point of recession, job losses come with it, followed by a higher vacancy rate for commercial real estate, according to industry analysts.

Real estate firm Marcus & Millichap says about 91 million square feet of new office space nationwide will be delivered in 2007, but the firm adds that only 75 million square feet of the space will find tenants.

Bethesda-based First Potomac says that by focusing on the strong Washington market and avoiding long-distance investments it does not control, it can withstand most economic downturns.

“We are locally based and manage all of the properties that we own, allowing us to provide a higher level of service and responsiveness than many of our competitors,” Mr. Bass said.

The company operates with 110 employees, compared with the 20 it had only three years ago when it became a publicly traded company.

The company’s greatest challenge is “making sure we have the right people in place to continue growing our business,” Mr. Bass said.

Its holdings in the Washington area include the Plaza 500 warehouse complex in Alexandria, Sterling Park Business Center in Sterling, Va., and the Windsor at Battlefield office and warehouse complex in Manassas.

First Potomac earned net income of $717,526, or 3 cents per share, on revenue of $27.1 million in the third quarter of 2006, compared with income of $1.6 million, or 9 cents per share, on revenue of $20.4 million one year earlier.

Its funds from operations, or FFO, a measure of real estate investment trust performance, were $10.2 million in the third quarter.

Its stock closed on the New York Stock Exchange at $29.49 per share yesterday, down 31 cents or 1 percent, compared with Friday’s closing price.

Charles Place, research analyst for the financial firm Ferris, Baker Watts Inc., wondered whether First Potomac’s recent decision to raise rents would hurt its earnings in 2007.

“Management’s decision to drive up rental rates at the expense of short-term occupancy improvement has resulted in a decrease in tenant-retention rates and a slowing of internal growth,” Mr. Place said in his most recent research note, which was available yesterday.

First Potomac said it did not want to retain some of the tenants who fled when rents were raised because of their low credit quality and in some cases because they operated businesses that were viewed as inappropriate for the kind of property they were in.



Click to Read More

Click to Hide