REIT Invests $27M Into Off-Market Buy

Signs point to additional expansion into the Gaithersburg area by Columbia, which also owns Park Plaza II along Gaither Road in North Rockville. Columbia CEO and chairman Oliver Carr tells GlobeSt.com that the REIT "would like to grow our presence in the north Rockville-Gaithersburg market. We like the supply-demand fundamentals in that market. There has been healthy job growth in Montgomery County with limited new supply."

Columbia did not disclose the seller, but its SEC filing in April shows it entered into a material definitive agreement with Foulger Land LP and Argo Orchard Ridge Manager Inc. to acquire 100% of the ownership interests in 101 Orchard Ridge Dr. for $11.94 million before transaction costs. Carr would not comment on the filing.

In a statement, Columbia reports that the six-tenant asset is expected to generate a first-year net operating income-to-purchase price return [cash basis] of nearly 7.6%. In conjunction with the acquisition, Columbia assumed an existing loan for $15.5 million at a fixed-rate interest of 6.06%, which matures in January 2014. The balance of the acquisition was funded with proceeds from the REIT's revolving credit facility.

Carr says the 101 Orchard Ridge Dr. deal was privately negotiated--a strategy that the REIT has used in roughly two-thirds of its acquisitions. "We are very active in off-market transactions," he says.

Because Gaithersburg is so small, any major tenant that leaves a building can have a material impact on the overall vacancy rate of the area, Tonya Ginter, director of Research for GVA Advantis tells GlobeSt.com. The submarket's vacancy rate is now 12.2% in 2006, up from 10.3% in 2005.