As published in Washington Business Journal,
by Daniel J. Sernovitz, Apr 24, 2017
A D.C- based commercial real estate firm has paid just $9.5 million for a vacant Rockville office building, a fraction of the $81.4 million the property traded for in 2005 when the eight-story office building was occupied by the National Institutes of Health.
Goodstone LLC closed on Friday on its acquisition of 6116 Executive Blvd. for just shy of $44 per square foot, a price so diminutive that it’s been the subject of rumors in the commercial real estate industry for weeks. Goodstone bought the 217,723-square-foot building from special servicer LNR after its prior owner, an affiliate of Capital Property Associates, foreclosed on the eight-story office building in late 2014. After more than two years with LNR, Goodstone cast the winning bid when the special servicer put the property up for auction through Ten-X last month.
By contrast, the average sale price per square foot for suburban Maryland and Greater Washington for the first quarter of 2017 was $73.47 and $363 respectively, according to real estate services firm JLL. The building at 6116 Executive Blvd. itself had traded for nearly $374 per square foot in 2015.
The $9.5 million sale price, a low point for commercial real estate deals in suburban Maryland, highlights two big trends landlords across the D.C. region have been grappling with for some time: an extremely sluggish demand for office space, and the expiration of billions of dollars in debt taken out before the recession to secure those properties. The building was secured by a commercial-backed mortgage security, or CMBS, issued in 2005 through Wachovia Bank. Fitch Ratings identified 6116 Executive Blvd. as a major financial risk in January 2015 after the NIH moved out.
Goodstone President Stephen Durr said he is bullish on the building’s prospects despite those challenges. Parts of Montgomery County have been hit hard by a contraction in the federal government, particularly by agencies like NIH, but Durr said 6116 Executive Blvd. has several things going for it that should help it lease up more quickly than others. Among them is the building’s location, less than a mile from the White Flint Metro station and amenities like the shops and restaurants at Pike & Rose.
“This is a property that can be, and was in the past, ideally situated for employers today,” Durr said. “This has the great location, this has the urban amenities, and it’s just a matter of restoring it to its best-in-class location that it was.”
Goodstone plans to spend about $10 million on renovations, with amenities to include fitness and conference centers, a cafe and terrace with outdoor seating. It is in the process of selecting an architect for the work and hopes to wrap up renovations a year from now.