The federal property sector remains a small niche in the overall investment market, but it is also dynamic. Despite the fact that the overall federal real property inventory is shrinking, sales over the past 12 months have remained active. Remarkably, slightly more than half of all federally leased properties purchased in the past year were acquired by just four firms–further evidence that the Pareto Principle is alive and well.
As in last year’s edition of our “top 10” list, this tally includes ownership of all federal properties except those occupied by the US Postal Service (though adding USPS properties would have little effect on these rankings). Otherwise, our methodology is as follows:
- We have ranked owners by square footage and not by rent or any other measure because square footage is the most unimpeachable metric available to us.
- We only tallied leases that have commenced. If a lease has been awarded but not yet commenced (as in a lease-construct project, for example) we haven’t counted that in this list.
- Determining “ownership” can be tricky business. We have typically defined the owners as those operating partners who are the face of these properties–the people who ultimately manage the assets. However, we recognize that for some properties there may be behind-the-scenes equity partners whose ownership stake is substantial. We have not attempted to identify these equity partners in this list.
- If you think we’ve mis-counted your portfolio, email me or leave a comment below.
Here is this year’s ranking:
1. Government Properties Income Trust
Government Properties Income Trust (NYSE: GOV) has been at the top of this list since our first edition in 2013. The investor should remain the industry leader for a while longer, even though it has not bought a single federally leased property since May 2014. GOV owns 67 federally leased buildings.
2. The JBG Companies
Washington, DC-based JBG Companies has been, hands-down, the most active developer of new GSA-leased properties in the U.S., especially as measured by square footage. Yet, the marked slowdown in new construction has halted JBG’s growth in this sector. The firm is now selectively disposing of many of its assets, including the sale of an NIH-occupied, 491,000 RSF office building earlier this month. We expect JBG to continue to be a seller over the next year.
3. Boyd Watterson
Boyd Watterson Asset Management is a Cleveland-based investment advisory firm that has emerged as the most prolific investor of federally leased properties on this list. Since purchasing its first government property in 2010, Boyd Watterson has amassed nearly 90 properties leased by GSA and other federal tenants. At its current pace of acquisitions, Boyd Watterson is poised to become the top U.S. government property investor in just a couple years.
4. Corporate Office Properties Trust (COPT)
The COPT (NYSE: OFC) business model has focused less on GSA-leased properties and more on those leased by the U.S. Army Corps of Engineers on behalf of military and intelligence agencies. Though these agencies grew at a phenomenal rate following 9/11, that rate of expansion has cooled, at least as relates to leased space. COPT’s federally leased inventory stands exactly where it was a year ago.
5. Vornado Realty Trust
Vornado (NYSE: VNO) continues to aggressively pursue federal tenants to improve occupancy in its Northern Virginia portfolio. Yet, Vornado’s federal lease inventory will decline sharply later this year once a receiver is formally engaged to take over the firm’s Skyline portfolio in Falls Church, Virginia. Skyline includes seven buildings that house 869,000 RSF of GSA-leased space.
No firm on this list has been dedicated to government property investment longer than NGP. Now investing its sixth fund, NGP has amassed a total of 51 buildings and it is actively buying. If history is any guide, we expect NGP to continue to move up this ranking next year.
7. Easterly Government Properties
Easterly (NYSE: DEA) was founded in 2011 as a federal fund investor and and in early 2015 the firm merged with Western Devcon and went public. Western Devcon also brought development expertise, positioning Easterly to grow both through acquisitions and new construction. Easterly debuts on our Top 10 list this year due to rapid post-IPO growth totaling a dozen property acquisitions.
8. USAA Real Estate Company
USAA debuts in the Top 10 for the first time this year, primarily due to its growing “US Government Building Fund”. USAA’s focus has been primarily on larger, newer properties, all with long-term leases. The firm purchased two buildings in the past year, totaling 647,000 RSF and USAA is still actively buying and funding new developments. It owns the 668,000 RSF National Science Foundation HQ project, which will deliver late next year. Expect its position in the Top 10 to improve over each of the next two years.
LCOR remains in the top 10 based on its role as asset manager for the high net worth individuals that own the 2.4 MSF headquarters of the U.S. Patent and Trademark Office (PTO), the largest GSA lease in the United States. The PTO lease spans five office buildings in Alexandria, Virginia. LCOR developed this campus in 2003.
10. Brookfield Office Properties
The Brookfield Office Properties (NYSE: BPO) portfolio of federal leases has remained fairly steady since last year. Eventually, however, Brookfield’s federal inventory is likely to shrink. Its largest tenant, TSA, is expected to vacate as early as 2018 and its second-largest tenant, PBGC, recently began its market survey process in anticipation of a potential relocation in the 2018-2021 timeframe.
Colliers is pleased to have served eight of these ten leading federal property investors. To learn how we can assist you, please contact me here.