Metro Considers Sale of Headquarters as building “valued between $56 million and $132 million”

metro hq
Photo by PoPville flickr user nevermindtheend

From WMATA:

“Metro GM/CEO Paul J. Wiedefeld announced that a valuation analysis of the Jackson Graham Building, Metro’s downtown D.C. Headquarters, has been done. The findings are that the building is valued between $56 million and $132, depending on what density a rezone of the property would allow.

Proceeding with the General Manager’s Customer Accountability Report (CARe) initiative to review the upside of selling the Jackson Graham Building, Wiedefeld enlisted a commercial real estate advisory firm, Jones Lang LaSalle, to conduct a valuation of the 48,041 square foot property.

The report includes a range of current market values for the property and identifies various scenarios that maximize its worth—from a baseline scenario of renovating the existing structure (which renders the lower end of the value range, at $56 million), to demolition and redevelopment from the ground up for future commercial uses (the highest likely value estimated at $132 million).

Adjacent to the Verizon Center and proximate to two Metrorail stations, the sale of the 600 Fifth Street, NW site is prime for a top-of-the-market commercial or residential development. However, current zoning has Metro as the only permitted use of the site. If Metro were to stay in the building, it would need to expend an estimated $75 million to $90 million to replace almost every major building system (plumbing, heating and air conditioning, electrical, fire/life safety), all of which are at the end of their useful life.

”The choices facing Metro about its headquarters building are clear: either expend millions to retrofit the existing building to bring it up to modern fire and life safety standards, or sell the building at the top of its potential value range and use those proceeds to fund a relocation,” said Wiedefeld.

To optimize the value, Metro will be seeking rezoning to allow for a high-density commercial redevelopment, which is consistent with the District of Columbia’s Comprehensive Plan. Following the rezoning process, Wiedefeld will reassess Metro’s market position and make a determination about whether or not to move forward with the sale of the Headquarters facility.”

22 Comment

  • I love it. Everything about Metro is falling apart. Rich.

  • They should put the new building somewhere that’s easier for employees to access by car…

  • So regarding that $75M-$90M capital expense for the building systems were Metro to stay on … does that simply disappear if they choose to vacate? Meaning they leave, does the new buyer assume 100% of the repair obligations?

    • i think if it can get rezoned and a developers buys it the developer will demo and start from scratch.

      PG County has lots of metro stations with nothing around them.
      Move metro hdq there…unless it has to be in DC ?

      • Putting it where WMATA’s employees actually live would make a lot of sense….

      • “PG County has lots of metro stations with nothing around them.”
        .
        Tangential: I marvel at how much infill development has taken place around the Prince George’s Plaza Metro station in the past 10-15 years. Areas that used to be grassy lawns adjacent to the Metro are now stores. High-end midrise and high-rise apartment buildings have been built. Parking lots are being turned into buildings.

      • I say move Metro somewhere East of the River… Historic Anacostia, Congress Heights, St. E’s. That would make real sense from a cost savings and economic development standpoint. This should be an easy win-win for DC… the Mayor and her team should agree to allowing for the added density on the existing HQ site in exchange for relocating to a less advantaged part of town in DC (not PG).

  • Would love for this building to be re-developed and zoned for residential. It’s a huge eye-sore in an otherwise aesthetically pleasing area. A fairly substantial influx of residents could definitely boost the neighborhood. While Chinatown has come a LONGGG way it could still stand some more upgrades/improvements.

    • Verizon Center (directly west of Metro headquarters) is aesthetically pleasing? The fire department (directly south of Metro headquarters) is aesthetically pleasing?

      • The Building Museum (directly east of Metro Headquarters), the old Burger King building (directly north), and the GAO (love me some Art Deco) on the other side of the building (you know, the one where the door is) are quite nice.

        • Yes, those buildings are nice. But ST21’s comment implied that Metro headquarters was the only eyesore in the area. It is not.

      • maxwell smart

        Yeah… there isn’t anything in this area of town I would say is worthy of any design recognition.

  • west_egg

    I believe one of the complicating factors here is the fact that the Red line basically runs through the basement — no?

  • Oh man…don’t do it Metro. It is extremely short term gain for long term gain.

    Any first year B-Schooler can run the basic numbers to show its an awful money-pit idea for Metro to sell and move.

    Option 1: Stay and Renovate. 500K SF Building at ( we will split the difference) at $82M = $ 165/SF. Your operational costs go down a bit but they are still spending $20/sf to operate the building (utilities, security etc). The costs are amortized over 30+ years because they own the building. Cost to own/operate and upgrade over the next 30 years is $13M per year.

    Option 2: Sell and build a new headquarters. Assume top sales price of $130M and assume new headquarters would be built on Metro property, so no land acquisition cost. Cost of core and shell and TI buildout is $300/SF spread across 500K/sf which means an upfront capital cost of $150M. You are in the red from day one, and you haven’t even built in yearly operational cost of $20/SF. You get a negative ROI.

    Option 3: Sell and lease new space. Assume top sales price of $130M and assume lease cost for a 500K lease is $50/SF full service per year. (Its $70/sf downtown and $35/sf in Tysons so lets split the difference at $50/sf). Year one lease costs are $25M with small yearly escalations, but for this purpose lets call it fixed.

    TI improvements will run $200/sf. A landlord with a 500K/sf lease in the DC market will offer $100/SF in TI, Metro would have to throw in another $75/sf above that to meet programmatic and operational requirements. So Metro’s day one cost is the $75/sf in TI is $37.5M, and lets pretend they will take this for a 30 year lease (there is no such thing in the office world but I am proving a point to keep things apple-to-apple. That means the amortized TI is $1.25M per year.

    Full yearly cost to lease for the 30 year duration is the lease and TI, or $25M+1.25M = $26.26M per year or twice as expensive as option 1. In realty it is far more expensve because the lease costs escalates and you wouldn’t be able to amortize the TI over 30 years on a lease, more along the lines of 10-15 years (max).

    Remembering the assumption of the full $130M sales price, that means you are back in the red after only 5 years, and starting on the 6th year, you are now out of pocket $26M/year.

    So under the absolute best case scenario, Metro sells their headquarters for a temporary fiscal sugar high that fades after 5 years at which point they are spending a minimum of twice per year for office space over Option 1.

    This is not a massive revenue generating or money savings venture. It will cost metro more money in the 5+year-to-forever horizon.

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