Corporate Office Properties Trust has announced a strategy to become known as "the Washington suburban REIT," and the company is making its move. Already the dominant owner of suburban office properties in the Baltimore/Washington Corridor, the real estate investment trust (REIT) is expanding its portfolio to the Northern Virginia market and watching for opportunities to move into the Interstate 270/Rockville, Maryland, area.

"One of our strategies is to be a dominant landlord in a specific area," says Rand Griffin, president and chief operating officer of the Columbia, Maryland-based firm.

Corporate Office Properties owns about 30 percent of the office space in the Baltimore/Washington Corridor. The company has targeted the area because it is one of the strongest markets in the country, posting low vacancy rates and experiencing little overbuilding.

The company prefers suburban markets because "downtown properties are a little more concentrated and it is hard to have a dominant position," Griffin says. Further, the company works with large corporate tenants that tend to favor suburban properties with large floorplates, free parking and easy access for employees.

"Our largest tenant is the U.S. federal government, mainly the intelligence community," says Griffin. Defense contractors serving the intelligence community also represent a sizeable portion of the company's tenants.

While the firm was affected by the beginning of the recession in early 2001, leasing activity began picking up in May, and in July 2001, the National Security Agency announced a $2 billion, 10-year contract with 12 companies to upgrade the agency's computer systems. The agency indicated that the 12 companies needed to be located at the National Business Park, which is across from the agency's headquarters and tied into the headquarters by access and secured fiber optics communications. Corporate Office Properties owns the park. Seven of the 12 firms are in the park and Corporate Office Properties is negotiating with the other companies. Additionally, the government's response to the terrorist attacks spurred leasing activity in Corporate Office Properties' buildings.

At the end of November, the company began its expansion into the 140 million-square-foot Northern Virginia market with the purchase of a 470,000-square-foot building at Westfield, an office park south of Dulles Airport. The property includes 17 acres, which can support an additional 400,000 square feet. The building, which is 100 percent leased with no rollovers until 2004, was purchased for $59 million. It was built in 1989 for $93 million and appraised in March of 2001 for $80 million. The transaction was the second largest transaction in Northern Virginia last year.

The building came with a team of 10 people, giving Corporate Office Properties a base in the area. In addition to continued purchasing in the Baltimore/Washington Corridor, the company plans to buy $100 million to $200 million worth of properties in Northern Virginia this year. "We purchased $143 million of properties last year and we would like to exceed that this year," states Griffin.

Corporate Office Properties has closed on two deals in the Baltimore/Washington Corridor this year. The company acquired a 145,000-square-foot building in Columbia Gateway for $16 million. That property is fully leased to Honeywell. In a $16.3 million deal, Corporate Office Properties purchased 5 buildings totaling 168,000 square feet. Four of the buildings are located in Rivers Park and the fifth is at Parkway; the properties are 98 percent leased.

The company has $1.1 billion in assets currently. "We were the top-performing office REIT last year with 29 percent shareholder return, and we were Number 1 for the last 3 years with a 116 percent shareholder return, which was actually better than any of the top S&P companies," says Griffin.

"We are the top office REIT year-to-date," he continues. "Through the beginning of June, we have delivered a 21 percent shareholder return. We are on track for a very good year."

"Within 3 to 5 years, we will double our size," predicts Griffin. "We will go from $1 billion in assets to $2 billion very comfortably. We will still be the dominant owner in the Baltimore/ Washington Corridor, and I think we will have a fairly major presence in Northern Virginia and in the I-270 Corridor."

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