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WASHINGTON, DC-First Potomac Realty Trust has added two properties to its portfolio, bringing its holdings to 10 million sf. The acquisitions–two separate transactions that totaled $28.9 million–were both off-market, value-add deals with local investors in the DC market, Nicholas R. Smith, First Potomac’s chief investment officer, tells GlobeSt.com. “They are both well located and their long-term prospects are very good.”

One, Indian Creek Court, is a four-building, 186,691-sf flex property in Beltsville, MD that is 84% leased to seven tenants. The purchase was funded with $10.7 million in cash and the assumption of a $12.8-million loan that matures in 2011 and bears interest at a fixed rate of 7.8%. The property is expected to generate a first-year unleveraged return of approximately 8% on a cash basis and approximately 8.1% on an accrual basis.

The second transaction, a 52,581-sf flex property in Sterling, VA, is located in the Sterling Park Business Center next to other First Potomac properties. It is currently 86% leased to six tenants. The property was acquired for $5.4 million in cash and is expected to generate a first-year unleveraged return of approximately 7.1% on a cash basis and approximately 7.5% on an accrual basis.

In general, Smith says the Washington, DC-area flex/industrial market is well positioned for growth, despite flat or declining growth projections by some analysts. “I think [rental] rates will continue to increase in the foreseeable future.”

Most of the product being built in Washington, DC is office, he notes, which leaves little room for competing industrial/flex projects. Also, office space in the metro area has become very expensive–averaging, for example, in the mid $30s per sf in the Dulles Corridor–compared to flex space, which averages in the low to mid teens, he says. This cost structure has pushed many firms that might have considered class B office space to look at flex space. “It is a cheaper and more flexible alternative for a lot of firms–an affordable Plan B,” Smith says.

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