Northrop headquarters move a fiscal move as well

Purchase of building could have bottom-line advantages

Northrop Grumman Corp.’s decision to buy rather than lease its new corporate headquarters in Northern Virginia wasn’t based primarily on that old real estate axiom "location, location, location."

According to today’s Wall Street Journal, it was more likely "accounting, accounting, accounting."

After several months of secrecy, the giant defense contractor Northrop Grumman this month picked a building in Fairview Park, a neighborhood of office buildings in Falls Church, Va., to relocate some 300 employees from the Los Angeles-area offices where the company was founded in 1939.

Maura Webber Sadovi, writing in the Wall Street Journal column “Deal of the Week,” reports that the property appealed to Northrop because of its proximity to the Pentagon. But it also didn’t hurt that the state and local governments put together an incentive package of grants and infrastructure improvements worth at least $16 million.

Northrop reportedly will pay the building’s current owner, ING Office Fund, at least $78.6 million in cash for the 14-story building. ING bought the property from Verizon Communications Inc. for $105 million in 2007.

Northrop Vice President of Finance Gaston Kent is quoted in the column as saying, “Buying made sense, anyway; it just made more sense in light of the rules.”

Gaston was referring to a proposed accounting rule change.

Under current accounting practices, most companies show the cost of leasing their real estate as an expense but not as a liability, according to the Journal story. Under new proposed standards that could take effect in 2013, companies would be required to show leases as liabilities.

And that has some companies concerned that would reduce their borrowing capacity, Sadovi wrote.

The Real Estate Roundtable trade group is concerned that the regulation would “put more pressure on companies to sign shorter leases and reduce building owners’ ability to obtain long-term leases that are often key to their financing strategies," according to the story.

Northrop Grumman, of Los Angeles, ranks No. 2 on Washington Technology’s 2010 Top 100 list of the largest federal contractors.

About the Author

David Hubler is the former print managing editor for GCN and senior editor for Washington Technology. He is freelance writer living in Annandale, Va.

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