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PROJECT:
New corporate headquarters for Northrop Grumman Corp.
2980 Fairview Park Drive, Falls Church  

The deal:
Purchase of Fairview Park, a 14-story office building near Falls Church

The sellers: 
Two institutional investors advised by ING Clarion Partners LLC

Broker:
Cathy Delcoco, executive vice president, CB Richard Ellis


By late summer, more than 500 employees of one of the world’s largest defense contractors will start moving into a 14-story office building in Fairview Park.  Northrop Grumman Inc. is relocating its global corporate headquarters 3,000 miles from Los Angeles to Fairfax County.  A Fortune 100 company with annual revenues of $34.7 billion in 2010, it will be Virginia’s largest public company.

Some of the executive California staff are making the trek.  When the new headquarters is ready, Northrop Grumman will close its current office in Rosslyn, consolidating many of its employees in Northern Virginia under one roof. Altogether, it employs 40,000 people in the metro Washington region, with many of them in Northern Virginia — home to Northrop’s information systems division.

The defense giant already has installed its sign on top of the 335,000-square-foot building at 2980 Fairview Park Drive.  Renovations are under way to make the building more secure.  And, perhaps the best part, Northrop Grumman owns the building.  Gaston Kent, Northrop Grumman’s vice president for finance who was in charge of the site selection process, says the company paid in cash — $101.3 million — when it closed the deal in October. “We wrote a check. It’s paid for,” he says.

Yet there were times during Northrop Grumman’s lengthy and highly public quest to find a new home near Uncle Sam — its biggest client — when a deal was anything but certain. Gaston says the company encountered numerous challenges during a winnowing process that at one point included as many as 57 buildings. 

First, Northrop Grumman had to decide where to go: Maryland, Washington, D.C., or Northern Virginia. Its desire to locate in the metro Washington area sparked a bidding war among the three jurisdictions, with Washington offering as much as $25 million in incentives at one point to woo the company and its 300 new corporate-level jobs paying an average salary of $200,000. Virginia offered $13 million in incentives and a jobs tax credit, and Fairfax County threw in transportation infrastructure improvements. 

To assist in site selection, the company hired CB Richard Ellis and worked with broker Cathy Delcoco. An executive vice president in the real estate company’s Northern Virginia Global Corporate Services Group and one of its top brokers nationwide, Delcoco could not talk with Virginia Business about her role because of a nondisclosure agreement between the companies. Yet, Gaston says having local boots on the ground proved valuable. “They had a good feel for the market, the condition of the buildings we were looking at and, for the most part, a good feel on what the reaction of the owners would be.” 

After a first round of bids from 12 to 13 buildings, Gaston said the company decided to buy rather than lease, in part because of possible changes in accounting rules.  Current practices allow leasing costs as an expense on corporate financial statements, but a proposed change would switch those costs to a corresponding liability.

Finally, after a six-month search, the choice came down to two buildings: the tower in Fairview Park, which was a former regional headquarters for Verizon, and a build-to-suit project on Glebe Road in Arlington County. “We couldn’t assure ourselves that the build-to-suit would be ready, so that’s when we narrowed the contest,” Kent says.

To buy Fairview, though, Northrop had to negotiate with a joint venture partnership involving two institutional investors. “The biggest challenge,” Kent recalls, “was satisfying the interests of both of the owners. They were exactly 50/50, so no one was in charge. It took a prolonged negotiating session. It was not a certainty.” 
Kent termed the $101.3 million price tag — or about $330 per square foot — as fair. “The market is strong here. That was a bit of a surprise to us.”  That figure is slightly below $345, the average price per square foot for an office building that sold in the Washington metro area in 2010, according to Cassidy Turley.

Now that the dickering is over, Fairfax County is happy to welcome its fifth major headquarters relocation in recent years.  “Northrop Grumman’s decision is significant in a number of ways,” says Gerald L. Gordon, president and CEO of the Fairfax County Economic Development Authority.  Besides boosting the profile of the county as an international business destination, “it will create high-quality jobs in Fairfax County and be a magnet for partners and customers that also will create jobs here.” 


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