Patriot Equities

Case Study

Patriot Colorado Springs, Colorado Springs, CO

  • Patriot Equities
  • Patriot Equities
  • Patriot Equities
  • Patriot Equities
  • Patriot Equities
  • Patriot Equities
  • Patriot Equities
  • Patriot Equities
  • Patriot Equities
  • Patriot Equities
  • Patriot Equities

Challenge

Corporate Office Properties Trust (COPT) made a strategic decision in 2005 to follow many of their defense-related tenants to the Colorado Springs market. Consistent with this strategy, COPT bought many of their premier assets in the market and also developed number of new Class A LEED certified office properties. Ultimately, they created a 15 building office portfolio aggregating in excess 1.2 Million Sq. Ft. In 2012, COPT implemented a realignment strategy which called for greater geographic concentration. As a result, it was determined that the Colorado Springs portfolio would be divested.

While in a growing market, Colorado Springs at approximately 30 Million Sq. Ft. was considered too "secondary" by many large institutional investors. Further complicating the sale was the fact that the suburban office product was out of favor with many investors due to slow growth of the overall economy. This coupled with the size of the sale (approximately $150 Million) and the concentration of defense-related tenants at a time when Defense Department cutbacks were occurring due to sequestration made a successful portfolio sale very uncertain.

Solution

Patriot Equities proposed acquiring the entire 15 building portfolio, thereby meeting COPT's objective to sell the properties in a single transaction. Patriot also investigated the market issues surrounding the defense concentration and learned that many of the functions taking place at the area bases were critical to the strategic mission of the US Space Telecom/GPS/Satellite Defense, and given their strategic importance, these functions would be less sensitive to possible DOD cutbacks as they were vital operations and maintenance program supporting technology a future warfare. This view was reiterated in interviews with members of the Congressional office in Colorado Springs as well as extensive tenant interviews. This data was helpful getting lenders comfortable with performance of the properties in the portfolio and the long-term need for office space in the market. Additionally, many of the existing tenants in the portfolio were Patriot tenants in other buildings owned and it was an opportunity to expand these relationships.

Result

Despite the challenges associated with the portfolio, Patriot settled the transaction prior to the year-end objective of the seller. COPT was able to extend the market consistent with the timing and pricing guidance provided to their shareholders in public filings. Further, many former COPT employees were able to remain with the portfolio and now assist Patriot with the day-to-day property management of the assets. The portfolio also continues to perform well with occupancy in excess of 90%.

Seller

COPT REIT

Transaction Type

Portfolio Acquisition Secondary Market

Use

Class A Office

Size

1.2M Sq. Ft. - 15 Buildings