First Potomac Expands Loan Agreement to $225M

WASHINGTON, DC-Despite the somewhat gloomy prospects facing the DC area, the past few days have been business as usual for the market. Cases in point: expanded bank financing secured by local REIT First Potomac Realty and the signing of a long-awaited mega lease by the US State Department.

In a Securities and Exchange filing, First Potomac reported that it has expanded a term loan agreement to $225 million from $175 million via the loan’s accordion feature. KeyBank National Association is the administrative agent for the loan, in which other banks and financial institutions are acting as lenders. The loan has three tranches, two of which are being expanded.

“We are using the proceeds to pay down our revolving line of credit,” CFO Barry Bass tells GlobeSt.com. “This is five-and-a-half year and six-and-a-half year debt that we are using to retire shorter term debt,” he says.

The extension is part of First Potomac’s larger migration away from mortgage debt toward unsecured debt—unsecured debt that is available at attractive rates, Bass adds. The loans have been priced at 225 and 230 spreads over Libor, he says, adding that First Potomac has “not yet fixed Libor but we probably will.”

A separate event—a 463,151-square-foot consolidation lease inked by the State Department at 600 19th St. NW—is also emblematic of the DC market, at least the DC market circa 2010, when large-sized government leases were the order of the day.

The government agency plans to consolidate the space it is using throughout the city at the 10-story building in a ten-year lease. Studley brokers Neil Levy, David Lipson, Rob Brunton and Tim Mazzucca represented GSA in the transaction.

There is not likely to be another large sized government lease in the DC area in the next few years. Jones Lang LaSalle predicts the leasing market will be all but stagnant this year. In addition, large-sized leases have a dwindling supply of buildings from which to choose.

The slowdown in development activity has created a shortage of large quality blocks of space, it said in a recent report. The report also indicated that, based on the current development pipeline, a deceleration in new groundbreakings should continue to limit new supply through 2014.