ANNAPOLIS, MD-First Potomac Realty Trust has made its first purchase in this small market in the Washington-Baltimore corridors: it has acquired Annapolis Commerce Park East for $19.25 million.

Annapolis Commerce Park East consists of two buildings totaling 101,302 sf that are located on 7.25 acres near the intersection of Commerce Park Drive and Bestgate Road. The property is fully occupied with four tenants, including the State of Maryland, which holds about 82% of the space.

The purchase price included the assumption of a $9.2-million first mortgage at a fixed interest rate of 5.74% and a maturity date of June 2014. First Potomac paid the balance of the purchase price by issuing 72,159 units in an operating partnership valued at $24.45 per unit and approximately $8.3 million in cash.

The property is expected to generate a first-year unleveraged return of approximately 6.8% on a cash basis and 7.2% on an accrual basis.

Nicholas R. Smith, First Potomac’s CIO, tells that the acquisition represents both a value add and–with the state as the main tenant–a cash flow producing opportunity for the company. “Current rents in the building are slightly below market rate. The market is tight and we think there is an opportunity to get more yield.”

There are also high barriers to entry in Annapolis as there is little affordable land to build industrial/flex product. Hence the submarket’s vacancy rate is less than 5%. This is one reason why First Potomac has been eyeing Annapolis for its portfolio. “It has been a market in which we have wanted to move for quite some time,” Smith says.

The company did not have the opportunity until this property came onto the market–Annapolis’ supply of available industrial and flex product can be quite thin, Smith notes. “We are hoping this acquisition is the beginning of further investment in Annapolis,” he adds.

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