NORTH BETHESDA, MD—It is difficult to find an asset class more in disfavor right now than suburban office properties, especially if the building in question is nowhere near transit options.

So when Meritage Properties learned that its JV partner and co-owner of Atrium at Rock Spring Park wanted to sell its stake in the 235,417-square foot building, executives were disappointed.

The company wanted to keep its stake in the building, located at 6555 Rock Spring Dr., because -- as we shall see in a moment -- it has several factors in its favor. However, given where it was located, they didn't think it could find a partner to recap the building.

In the end it was able to find a new equity partner, in part because of HFF's network, which secured the new investor, but also in part for the reason why Meritage was so anxious to hold on to the property: it has a compelling business case despite the vast negative of being in a suburban area. "If it hadn't been us, another equity partner would have been found," HFF senior managing director Dek Potts tells GlobeSt.com.

"Most people look at this submarket and say it is in a bad spot, there is a lot of vacancy and no metro. But this building has a very stable tenant base with good long-term prospects."

The property is 86% leased to seven tenants including The National Institute of Health and SAIC, the latter of which recently expanded in the space and is likely to expand even further, Potts said. "SAIC is a critical group for NIH as it does most of its data center operations, Potts said.

Meritage recapped the building with the new equity partner and the value of the new venture was determined to be $66.3 million.

Potts declined to provide the amounts Meritage and the partner kicked in as well as which is the majority owner.

Besides Potts, Stephen Conley, Jim Meisel, Andrew Weir and Matthew Nicholson also worked on the deal.

Instant Insights /

How Meritage Properties Recapped A Suburban Office That is Nowhere Close to a Metro Stop

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