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REA
October 31, 2018  

PGIM Pitches Value-Added Offices Near DC

PGIM Real Estate has teed up a suburban Washington office complex that might command only about half its peak value.

PGIM acquired the 687,000-square-foot Democracy Center, in Bethesda, Md., for $280.5 million, or $408/sf, in August 2007, shortly before the market crashed. At the time, that was the second-highest office price ever in the Maryland suburbs.

But now bids are expected to range only up to about $210/sf, or $144 million. Cushman & Wakefield has the value-added listing.

Offices in the Maryland suburbs have struggled to regain leasing momentum since the crash. At the end of the third quarter, the average occupancy rate was 81.3%, up only slightly from the 80.5% average over the previous seven years, according to Cushman.

While relatively new office buildings in urban locations such as downtown Bethesda have fared better, older properties outside the urban cluster, including Democracy Center, continue to lag. The complex’s occupancy rate is 78%, down from 84% when PGIM acquired it.

Democracy Center is at 6901-6905 Rockledge Drive in the Rock Spring Park submarket, about 5 miles from downtown Bethesda. The submarket’s average occupancy rate was 75.9% on Sept. 30, according to Cushman.

The marketing pitch is that Democracy Center is positioned to compete for relatively large tenants because of recent improvements and its proximity to new retail space and to public transportation.

PGIM has spent $19 million on upgrades since 2008, including improvements to the elevators, ventilation system and building amenities. A buyer could continue those efforts.

There are 27 tenants, half of which have leases through 2025. The rent roll includes Host Hotels & Resorts, Lockheed Martin, McDonalds and New York Life. Some 55% of the space is leased to tenants with investment-grade ratings.

The property, which was developed from 1984 to 1988, encompasses three triangular buildings clustered around a plaza on 15.4 acres. There is a childcare center, a newly updated fitness center and a cafeteria with indoor and outdoor seating.

Shuttles connect to the Grosvenor-Strathmore Metro Station, about 3 miles away, and the Westfield Montgomery Mall, which is about a mile away and is being redeveloped. Plans are under way to build or redevelop some 1,000 residential units and about 350,000 sf of shops in the immediate area.