NEWPORT NEWS, VA-Vienna, VA-based Sage Real Estate, a recently formed local firm headed by former Trammell Crow executive Steve Shelesky, along with joint venture partner Keane Enterprises, has scored what may well be the distressed deal of the year: a 141,000-square-foot office building downtown here for an eye-popping $16 per square foot. Its assessed value is two-and-a-half times what the company paid. 

There is nothing seriously wrong with the building, Shelesky is quick to say. Located at 2600 Washington Ave., the approximately 40-year-old building is 53% leased, and, yes, there is some rollover of the tenant base next year. However, it is a functioning building housing such companies as Bank of America, the City of Newport News and the Commonwealth of  Virginia General Services Administration.

Even more intriguing is that it is located about five blocks from the city’s shipyard, which is the biggest employer in the region with some 10,000 workers. Shelesky tells GlobeSt.com that he is currently in discussions with the shipyard to back fill between 30,000 square feet to 40,000 square feet at the property. He is also in talks with a state government agency that is interesting is leading an entire floor. 

So what good fairy dropped this property into Shelesky’s lap. To hear him tell it, the deal came about largely through timing, the willingness to look further than the DC area for value-add opportunities and a taste for brinkmanship with the seller.

Shelesky had originally negotiated a sales contract in April for the building at $23 per square foot. During due diligence he uncovered enough problems to force the lender back to the negotiating table to re-price the purchase. “We had done so much homework on the property that by the time I was finished with the due diligence I had a better handle on the property than the seller,” he says, adding that he expects to invest another $5 per square foot in repositioning the building and likely another $20 to $25 in tenant improvements. 

Shelesky is on the lookout for additional acquisitions but he is not expecting to replicate the value-add opportunity of the Newport News building--at least not in the DC area. The company currently has three development deals in negotiations for Northern Virginia and is to acquire smaller, infill urban properties that can be financed with private capital.