BAE Systems will be leaving their facility in Aspen Hill, at 4115 Aspen Hill Road, in April, 2010.
A mere remnant of the once-sprawling campus of the former Vitro Labs, the "BAE Building" in Aspen Hill will revert into the hands of the Lee Development Group, which also owns nearby Northgate Plaza Shopping Center. The Lee Development Group has been the owner and developer of the huge parcel of land which were once the Gill Tract, a large farm inherited by Anna Maria (Rannie) Gill, as a division of the formerly immense Rannie Tracts which at one time comprised some 700 acres of land along what is now Georgia Avenue, from modern-day Parkland Drive east to Connecticut Avenue, from modern-day Bel Pre Road to Aspen Hill Road.
BAE will be consolidating the positions at this location to 520 Gaither Road in Rockkville, at the Redland Corporate Center, according to this Gazette article ("Commercial Real Estate: BAE Systems downscales relocation plans: Military contractor to consolidate in Rockville", Goldreich, Sonny, Montgomery Gazette, August 28, 2009, downloaded 2009 September 21).
The current building was built in the late 1960s, approximately the same time that Lee Development constructed and leased "phase II" of the Northgate Plaza Shopping Center, which included space for the W T Grant department store, now occupied by SuperFresh Grocery store.
This building, once known as "Building 4" ("Building 1" is now the Home Depot), will be one of the largest completely unoccupied Commercial Real Estate entities in Montgomery County after the April 2010 move-out by BAE. The building, at present, is some 263,000-square-feet.
As I recently wrote, Commercial Real Estate is a glut and ready to collapse not merely nationwide, but here as well.
So, what is Lee Development Group going to do with 263,000 square feet of commercial real estate in a grossly overglutted market where every last financier knows that a market collapse is imminent?
The original Gill Tract, now owned by Lee Development Group, comprised some 78 acres of land, some 33 acres of which was sold to Vitro and which is now property of the owner of Aspen Hill's Home Depot. Thus, some 45 acres of real estate -- subtracting for the right-of-way of Connecticut Avenue which runs through the middle of it -- are partially covered with buildings dating back 40 years, which one might generally consider to be the useful life of commercial real estate.
Despite several face-lifts of the Northgate Plaza Shopping Center, the fact remains that most of the buildings are 40 to 50 years old.
Newer construction is in place in the form of the Sun Trust Bank Building dating back to the late 1970s, and the new construction after a tear down at 13920 Georgia Avenue, which will be a Wachovia Bank.
The BAE offices to be vacated are on a lot of probably about 20 to 25 acres, and the Northgate Plaza is about the same size.
Put Connecticut Avenue between Georgia Avenue and Aspen Hill Road into a tunnel, and you've got about 45 acres of available footprint for massive high-rise Mixed Use development only 2 miles north of the Red Line Metro Glenmont Station, and right adjacent to proposed median-lane Bus Rapid Transit.
I am not suggesting that this is what should be done.
In any case, who would want to finance it? According to the Gazette, there is such a glut of commercial space that landlords are offering one year free just to get them in the door.
[ ... ]
That's the bleak story told by the latest quarterly PricewaterhouseCoopers' Korpacz Real Estate Investor Survey, which shows that buyers are still stuck sitting on their hands waiting for further devaluations of distressed commercial property across the nation.
The survey forecasts more difficult times as property owners and banks await the shakeout of the ongoing decline in commercial space value, a surge of defaults on loans already under way and the approach of $153 billion of mortgage-backed securities coming due in 2012 across the nation.
In the meantime, landlords everywhere are growing more desperate to find tenants and to hang onto those already in their buildings.
[ ... ]
Further, and to confirm what I've been predicting all along:
[ ... ]
Companies are returning space to the market and operating in smaller spaces," said an investor quoted anonymously in the survey.
The report said that "since tenants gained control of this market, asking rental rates have declined and concessions have increased. According to our Survey participants, free rent ranges up to 12 months per lease term and averages just over six months. Tenant improvement allowances are also available to tenants. For shell space, [allowances] range from $25 to $85 per square foot and average $46.07 per square foot."
And it's going to get worse for landlords before it gets better.
As tenants shrank their space, the overall vacancy rate surged 340 basis points over the past year to reach 16.5 percent at midyear 2009, the report said. It forecast a higher vacancy rate in near term due as an additional 1.1 million square feet of new space comes on the market with "very little pre-leasing activity."
Nationwide, property sales activity will pick up only when commercial lenders and property owners finally are forced to write off bad debts and report devaluations based on rising vacancies and falling rents.
[ ... ] ("Commerical Real Estate: Landlords dangle a free year's rent to lure tenants", Goldreich, Sonny, Montgomery Gazette, September 18, 2009, downloaded 2009 September 21)
When the commercial banks are looking to unload "distressed" properties, that will probably come right about April 2010... exactly when Lee Development Group will find themselves with almost another quarter-million square feet in a market already at nearly one-in-five square feet of commercial space Vacant.
And as for Aspen Hill's nearby restaurants? What will they do when there are no longer a captive audience of 400 BAE Systems employees with a short lunch hour that doesn't allow them to drive anywhere?
More to come?
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