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WASHINGTON, DC-Morgan Stanley acquired the 428,000-sf office building at 550 12th St. SW, known as Potomac Center South, for $187 million. The 100% government-occupied office facility–the adjoining sister structure of Potomac Center North at 500 12th St. SW–was sold by developers and owners the JBG Cos. and Prudential Real Estate Investors.

Holliday Fenoglio Fowler was the exclusive representative for the seller and secured a buyer. The transaction included Morgan Stanley’s assumption of an exiting $76-million debt on the property in the form of a loan bearing a 5.82% interest rate. The building and the 1.5-acre it occupies in the District’s Southwest submarket have a current assessed value of nearly $100.2 million, according to DC real estate records.

Designed by Hickok Warner Cole Architects, the 11-story tower three years ago, was redeveloped for $70 million three years ago. Acting on behalf of two government agencies, the US General Services Administration has leased the building in its entirety under an agreement that expires at the end of 2014. HUD occupies 73.5% of Potomac Center South, while the US Department of Education occupies the remaining 26.5%. GSA’s in-place rent, as noted in HFF’s executive summary of the property, is $36.57 per sf.

Currently the average direct asking price for class A space in the city’s Southwest submarket, according to Cushman & Wakefield’s Second Quarter 2005 Office Report, is $49.38 per sf, the highest rate of the city’s six submarkets; accordingly, a lease renewal or new leases will provide additional upside for the new owner. Neither HFF nor Morgan Stanley was available for comment by deadline.

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