Buying the Transamerica tower — the tallest property in Maryland, with a prime downtown location and views of the Inner Harbor — sounds like a coup for a real estate company. Wall Street investors would beg to differ.
Shares of Corporate Office Properties Trust fell Tuesday after the Columbia-based firm announced a deal to acquire the office building at 100 Light St. for $121 million. The news sent the stock down 2.4 percent, to close at $23.42.
The price is the highest for an office building in Baltimore in a decade. CEO Roger A. Waesche Jr. told analysts Tuesday that the company knows the purchase is "contrarian, but also certain it is correct."
"Baltimore has been experiencing a renaissance that is durable," he said. "We are bullish on this building."
The Transamerica tower — previously known as the Legg Mason building — is COPT's second purchase in downtown Baltimore this year. In March, the firm acquired 250 W. Pratt St. for $63.5 million. It is also working on plans to redevelop waterfront parcels in Canton.
On the earnings call, analysts questioned the decision to double down in the Baltimore market, asking whether the company had considered urban properties in Washington and pressing for specifics about the building's expected yield.
John W. Guinee III, a Baltimore-based analyst for Stifel Nicolaus & Co. Inc., said outside perception of Baltimore shaped investor reaction.
"While we think of 100 Light St. as an iconic central business district office building with a 100 percent location in the strong Pratt Street office market, investors globally ... unfortunately think of that TV show 'The Wire' and of the highly [publicized] Baltimore riots a few months ago," he said.
"It may have been a good purchase for COPT and make good economic sense, but Wall Street is not responding positively."
The $121 million price is the highest for a Baltimore office building since 2005, when a Georgia real estate investment trust bought 100 E. Pratt St. for a record $207.5 million.
COPT said it paid about $190 per square foot for 100 Light St., excluding its parking garage. That is well below the record $341 per square foot that Beatty Development's new Thames Street Wharf property fetched last year, but more than the $172 per square foot COPT paid for 250 W. Pratt earlier this year.
The $121 million price is a "high number," but reflects 100 Light St.'s attributes, said Nadia Kahler, vice president of research and transaction management for Colliers International in Baltimore.
"It's definitely on the higher end of what people have been paying," she said. "I don't think it comes as a surprise. It is a good building in a great location, so I think we would have been surprised if it traded for much less."
The 37-story skyscraper at Pratt and Light streets has 549,300 rentable square feet and was 94 percent leased at the end of last month, with the Transamerica Life Insurance Co. and law firms Miles & Stockbridge and Ober | Kaler accounting for about two-thirds of the space. The deal includes a 560-space parking garage at 30 Light St.
Waesche said COPT expects to be able to raise rents for the remaining space as tenant leases expire, as well as add income by filling retail space in the parking garage building.
Local real estate brokers said the property's location on Pratt Street, which has higher occupancy rates than elsewhere in the city, helped drive the price.
"I think COPT sees the Pratt Street corridor as something unique, in that the performance is well-documented," said Cristopher Abramson, a senior director of capital markets for real estate brokerage Cushman & Wakefield, who works with COPT but did not do this deal. "It's a great buy for them."
COPT, which has traditionally focused on suburban properties catering to defense clients, said the Baltimore purchases are geared toward diversifying its portfolio with buildings in more urban locations, while remaining in a market near its Columbia headquarters.
Government and defense contractors remain the firm's primary tenants, and it has been unloading suburban properties that do not serve that clientele, using the proceeds for acquisitions.
The deal was announced as the real estate investment trust reported strong second-quarter earnings. Income increased to $12.2 million in the quarter, up from $1.8 million during the same period last year.
Earnings per share were 13 cents in the April-to-June period, up from 2 cents in 2014.
Seller Lexington Realty Trust declined to comment on the transaction.