Doug Donatelli, founder, chairman and CEO of First Potomac Realty Trust (NYSE: FPO), joined REIT.com for a CEO Spotlight video interview at NAREIT’s headquarters in Washington.
Donatelli discussed First Potomac’s decision to refocus its portfolio in the office sector while moving away from the industrial sector.
“When we started out as a public REIT, we were really focused more on industrial properties with some office in the mix,” Donatelli said. “Our focus is really on the greater Washington metropolitan area, and Washington really is much more of an office town than it is an industrial town. As we are looking around at our opportunities, we thought we had a much better opportunity to grow our company by focusing more on office, so we’ve recently decided to sell our industrial portfolio.”
First Potomac’s industrial portfolio of properties consists of more than 4 million square feet of space.
Donatelli offered his thoughts on addressing the challenges that come with such an adjustment.
“We’ve addressed a lot of the challenges of shifting over to office over the last few years,” he said. “We’ve grown our office portfolio substantially over the last three years or so. That has become the largest component of our overall portfolio, certainly from a revenue standpoint and from a square-footage standpoint also. The industrial portfolio that we have has become a smaller and smaller component of what we’ve owned. Really, it somewhat muddled our message.”
Donatelli acknowledged that fiscal concerns in the government sector are weighing on the commercial real estate market in his company’s home base.
“Office market fundamentals aren’t nearly as strong as they’ve been in the past,” he said. “We’ve been through slowdowns in Washington before. This is a pretty substantial slowdown by [Washington] standards. That said, last year the greater Washington metropolitan area had positive job growth. Slower positive job growth than what we’ve had in the past, but certainly not recessionary times. We have seen a shift in the way that tenants are using space. We’re seeing tenants become much more efficient in the way that they use office space, so that has led to an overall decline in demand, but the demand really has been for specific kinds of properties."