January 24, 2014 | Author: RICH LADEN | Original Source
Maryland-based Corporate Office Properties Trust, which invested more than $100 million in Colorado Springs commercial real estate after its 2005 arrival and became the city’s largest office landlord, is selling the majority of its local properties.
COPT, a publicly owned real estate investment trust, has begun marketing 16 of its 21 properties — including its five buildings in the Patriot Park business park on the Springs’ east side and six buildings in the north side InterQuest business park. In all, the 16 properties total roughly 1.2 million square feet.
Company officials declined to talk with The Gazette. In an earnings conference call last week with financial analysts, COPT executives said the sale of the properties could fetch $160 million, although it was unclear if that figure also included some assets outside of the Springs.
Company executives also said in the call that they were in the “early stages” of marketing the Springs properties, and their sale was expected to be completed by the third quarter.
Among tenants in the buildings being sold: Northrop Grumman, ITT Exelis Systems, Lockheed Martin and United Healthcare.
“We believe we know who, not who the buyer will be, but the type of buyer, and we’ve got a good package ready to go,” executives told analysts.
COPT is a nationwide real estate company that buys, develops and manages Class A, or top-of-the-line, office space. It focuses primarily on Department of Defense-related tenants and has large concentrations of buildings in Maryland and Virginia, along with Texas, Alabama and Pennsylvania. Through Sept. 30, it owned 206 office properties with 18.6 million square feet of rentable space.
The company came to the Springs, in large part, because several of its Washington D.C.-area defense and aerospace tenants had operations near local military installations.
In 2005, it bought the 65-acre Patriot Park at Powers Boulevard and Platte Avenue. Among other activity since then, COPT constructed several single- and multi-story buildings at Patriot Park and in InterQuest; purchased the three Northcreek office buildings on the northwest side; and bought several buildings near the Colorado Springs Airport, including one that houses Northrop Grumman.
In 2007, Colorado Springs Airport officials chose COPT as the master developer of a planned 272-acre business park at the airport, a project that’s still in its early stages.
Though COPT just recently began marketing the properties, it announced the decision to sell its Springs assets in December 2011. COPT said then that it was adding “office properties and land holdings” in the Springs to others being sold as part of a management-initiated, three-year “strategic reallocation plan.”
As part of that plan, the company said it wanted to reduce its exposure to “slower-growth markets,” improve its building occupancy and growth of its “core” properties and “redeploy capital into higher growth investments,” among other items.
COPT likely decided Colorado Springs is underperforming, based on the money the company invested here and how its return on that investment compares with other markets, said Jim DiBiase, a commercial broker with Olive Real Estate Group in Colorado Springs.
As of Sept. 30, COPT reported that its Springs properties had a vacancy rate of 23.5 percent, more than double the companywide rate of 11.9 percent, according to Security and Exchange Commission documents.
A lack of significant job growth and uncertainty about federal spending cuts and their potential effect on local defense contractors has led to a shaky market for COPT and other landlords, DiBiase said.
DiBiase expects COPT also will sell the remainder of its holdings in the Springs. COPT’s buildings are top drawer and should attract major real estate investors, he said.
Defense contractors and other tenants, meanwhile, aren’t likely to be scared off by a change in ownership, he said.
“Those tenants will end up with good, quality landlords,” DiBiase said.
Springs Aviation Director Mark Earle said the airport learned over the past few months that COPT planned to sell its local assets.
COPT has not yet said if it will walk away from its contract to serve as the airport business park’s master developer, Earle said. If it does, airport officials likely will seek another master developer for the project, he said.
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