Posts Tagged ‘Washington DC’

Washington, D.C., Housing Market Shines in a Bleak Landscape

Thursday, January 13th, 2011

Washington, D.C., Housing Market Shines in a Bleak LandscapeAlthough the Washington, D.C., residential market has held up surprisingly well over the past few years in an environment hammered by unemployment and foreclosures,  there is a question of whether the nation’s capital will spur recovery or if the rest of the country will drag down the local market.  Washington’s relatively low unemployment rate and availability of well-paying jobs has helped cushion the city’s housing market.  During the 3rd quarter, the District of Columbia’s average home price rose 3.1 percent over the 2nd quarter to $410,839, according to Delta Associates, a real estate research firm.  That is 6.2 percent higher than average home prices during the 3rd quarter of 2009.  The region’s foreclosure rate as of September was 2.1 percent, according to CoreLogic.  Nationally, the foreclosure rate was 3.3 percent.

According to Mark Zandi, chief economist at Moody’s Analytics, more than 4 million homes were in or near foreclosure nationally in 2010.  That’s over and above the 6.2 million homes that were foreclosed between 2007 and 2010.  Those 10.2 million foreclosures equal the combined populations of Vermont and North Carolina.  Approximately 57 percent of economists and real estate experts surveyed by Macro Markets don’t think that home prices will recover until 2012; another 35 percent believe that real recovery won’t happen until 2013.

In recent testimony before the Congressional Oversight Panel, Treasury Secretary Timothy Geithner said that 24 percent of homes in the United States are under water – which puts their owners in the unenviable position of being unable to refinance or sell.  “The most important thing that’s going to affect the trajectory of home prices, the overall number of foreclosures, the ability of people to stay in their homes, is what the government is able to do to get the unemployment rate down,” Geithner said.

Federal Presence Strengthens Washington, D.C.’s Office Market

Tuesday, September 7th, 2010

Washington, D.C.’s 10.4 percent office vacancy rate is far below the 17.3 percent national average.  Washington, D.C.’s commercial real estate market – including its Virginia and Maryland suburbs – continues to be the nation’s most stable with vacancy rates far below the national average.  The area’s vacancy rate stood at 10.4 percent at the end of the first quarter, far below the 17.3 percent national average, according to Reis, a New York-based real estate research firm.  Effective rents have fared well through the Great Recession, sliding just five percent from their 2009 peak high of $41.43 PSF.

“There is a tremendous amount of domestic capital looking to invest in D.C. for obvious reasons,” said John Kevill, managing director in Jones Lang LaSalle’s Washington, D.C. office.  “Aside from its solid fundamentals, investor demand is being stoked by the area’s dominant industry, the federal government.  The office market is benefitting from continued government spending in areas such as healthcare, the war on terror and the economic stimulus package.  That activity is really differentiating our economy from virtually every other economy in the country, which is why we are seeing an increase in transactional velocity”

As an example, Jones Lang LaSalle at present is listing twice the number of for-sale properties than just one year ago.  A key selling point for an office building in Landover, MD, is a 10-year lease just signed with the General Services Administration (GSA) on behalf of the Department of Defense.  The two-story Class B office building recently sold for a cap rate of 8.4 percent; the purchaser was the Government Properties Income Trust.  Real Capital Analytics reports that cap rates for Maryland office properties averaged 9.4 percent over the past year.

Renovate-Gate

Tuesday, June 15th, 2010

Watergate Hotel has been sold and will be renovated as an “upper-upscale hotel”.   Washington, D.C.’s fabled Watergate Hotel – the site of the notorious 1972 break-in at the Democratic National Committee headquarters that set off the political scandal that toppled Richard M. Nixon’s presidency – has been sold and will be redeveloped as an “upper-upscale hotel”. According to The Wall Street Journal, Euro Capital Partners, a redevelopment specialist, purchased the 43-year-old, 251-room hotel which has been closed since 2007 and had been foreclosed on by the German bank PB Capital.

“The Watergate is exactly the profile of what we’ve done and redone many times,” according to Jacque Cohen, a Euro Capital Partners principal, “with the difference that the Watergate is even easier” because it is relatively newer.

Renovation plans include a spa, meeting spaces, restaurants and bars that Cohen said would “improve the whole Watergate complex” and the surrounding neighborhood.  Rooms at the Watergate, which is within walking distance of the Kennedy Center and Georgetown, will be priced upwards of $300 a night.  Previous Euro Capital projects have included the Hilton Arc de Triomphe Paris and Washington, D.C.’s Hamilton Crowne Hotel.  The neglected hotel’s multi-million dollar renovation is expected to take at least two years.

Headquartered in Paris and New York, Euro Capital specializes in redeveloping pre-World War II properties into upscale hotels, offices and condominiums.

Government Expansion Will Fuel 2010 Office Absorption

Tuesday, April 13th, 2010

Federal government will need 4,000,000 SF of office space in 2010.  The federal government will lead the office market recovery, especially in Washington, D.C. According to Jones Lang LaSalle’s 2010 U.S. Federal Government Perspective, the federal government will need at least 4,000,000 SF of new space nationally this year, though the lion’s share will be in the Washington, D.C. market.

The need will be driven primarily by adding staff related to increased financial regulation and restructuring, which are receiving funding to carry out new or expanded mandates.  “This is a significant concentration of absorption given net private and public demand across the United States combined does not equal 5,000,000 SF” according to the report.

Jones Lang LaSalle predicts that federal demand will slow after the November 2 mid-term elections.  “Government leasing typically leads the private sector by six to 12 months, so this robust federal activity stands to help stabilize certain market segments – particularly the D.C. metro market,” said Joe Brennan, director of Jones Lang LaSalle’s government investor services team.  “The force of the federal government’s real estate need will continue and intensify over the next 12 months as the Obama administration shifts from the planning stages to implementation and execution of a broad spectrum of programs and initiatives.”

Office Rents Could Be Close to Hitting Bottom

Tuesday, March 23rd, 2010

Limited new supply and improving employment numbers could signal office rental rate rise.  A combination of limited supply growth and anticipated stabilization of the jobs market could mean that office rents may return to positive growth sooner rather than later.  That’s the opinion of Victor Calanog, a researcher at Reis, Inc., one of the nation’s leading providers of commercial real estate performance information and analysis.

According to Calanog, “Office properties took the brunt of the recession last year, with rents falling at record rates.  Effective rents cratered by 8.9 percent, the largest decline on record in almost 30 years of Reis history.  Hidden amidst the devastation were signs that office occupancies were faring better than other property sectors.  While multifamily and retail vacancies were hitting highs unseen in two decades or more, the national office vacancy rate was 17 percent at the end of 2009, the highest level since 2004.”

The percentage of office properties that had reduced their rents hit 86 percent in the 4th quarter of 2009.  Calanog predicts that office rents in Washington, D.C., could be higher than those in Manhattan by the end of 2010.

The good news is that recent labor market figures are encouraging, with the unemployment rate holding steady at just under 10 percent nationally.  Wall Street firms have started hiring again and job losses in New York were not as dire as predicted.  “Unexpected events can derail this recovery, and economic growth is expected to be fragile for the near term, but as more positive news emerges we may be on track to seeing rents grow as early as next year,” Calanog said.  “If this is the case, transaction volume and prices may pick up quickly to capitalize on the next upswing.”

Snowmageddon Didn’t Halt Economic Growth

Thursday, March 18th, 2010

Despite the Snowmageddon that crippled Washington, D.C. and much of the East Coast during February, the economy continued to grow at a modest rate.  This is the opinion of the Federal Reserve’s newly issued Beige Book report – officially known as the “Summary of Commentary on Current Economics Conditions by Federal Reserve District” — which is published monthly.Latest Beige Book report confirms that the economy is growing.

In terms of commercial real estate, the Beige Book notes that activity is still limited.  “Most Districts characterized commercial real estate and construction activity as weak or having declined further, but some Districts noted slight stabilization and a few signs of modest improvement.”  The Beige Book also noted that the snowy February kept prospective house hunters home in some parts of the nation.  According to the report, “Residential real estate markets improved in a number of Districts, although several Districts noted that activity softened or remained weak partly due to extreme winter weather.”

On the jobs scene, the Beige Book reports that “the pace of layoffs slowed in most Districts, but hiring plans still remained generally soft.”

Washington, D.C., Office Market Showing Signs of Stabilization

Wednesday, February 3rd, 2010

Washington, D.C., office vacancies shrank by 715,384 SF during the fourth quarter of 2009.Washington, D.C. office leasing is on the upswing for the first time in a year.  Not surprisingly for the District, the rise in leasing activity is driven primarily by expanding federal agencies. A study by CB Richard Ellis of fourth quarter leasing activity showed that the private sector is again leasing space they had subleased in late 2008 and early 2009, a sign that they might be on the verge of rehiring laid-off employees.  According to the report, the amount of vacant space shrank 715,384 SF during the fourth quarter.  That is a major change from the third quarter, when vacant space grew by 375,558 SF.

Vacancy rates reached a  high of 11.8 percent last year, thanks to the region’s net loss of 24,000 jobs and new office buildings coming on line.  Now, commercial real estate brokers are seeing new interest from law firms, associations and financial service firms wanting to lease space.  Some are planning for future growth, while others are taking advantage of large discounts being offered to attract new tenants.  “We have clients call and say maybe this is the time to go into the market and see what’s available,” said Ernie Jarvis, managing director of CB Richard Ellis’ Washington office.

Approximately 32 percent of commercial leases are with the federal government, an increase over the 21 percent reported in recent years.  In normal years, the government has three of the top 10 transactions in the region; that rose to eight in 2009.  These include 802,000 SF leased by the Department of Health and Human Services in Rockville, MD; 503,000 SF leased by the Drug Enforcement Administration in Pentagon City, VA; and 360,000 SF leased by the Nuclear Regulatory Commission in North Bethesda, MD.

Investors Are Choosing London

Thursday, January 28th, 2010

London beats Washington, D.C., as preferred destination for commercial real estate investment.London has overtaken Washington, D.C., as the preferred city for commercial real estate investment,  primarily because investors believe that prices have bottomed out and the time to get into that market is now. The British capital has overtaken the previous favorites of Washington, D.C., and New York, according to a survey conducted by the Association of Foreign Investors in Real Estate (AFIRE).

“London currently offers investors the advantage of a ‘re-priced’ market,” says James Fetgatter, AFIRE’s CEO.  “The re-pricing began sooner than it did in other cities.”  London’s score is 31 points higher than the perennial favorite Washington, D.C., and 40 points ahead of New York City.  A year ago, London occupied second place, ranking four points behind Washington.  The survey of the association’s approximately 200 members was taken in the fourth quarter of 2009 and represents ownership of more than $842 billion of commercial real estate.  Of that, $304 billion is invested in the United States.

London, along with the rest of the United Kingdom, has rebounded with investment rising 56 percent from the first to the second half of 2009.  Property values rose 2.4 percent in November, the largest monthly increase in 15 years.  Savills, the real estate advisory firm, is predicting London will eclipse New York as the fastest growing global financial center.

Despite London’s success, the United States is still preferred as the “most stable and secure real estate investment environment,” according to 44 percent of survey respondents.  This is the first time the United States ranked below 50 percent in the survey.  It ranked 53 percent in 2008 and 57 percent in 2007.  Germany occupies second place with 21 percent.  In terms of price appreciation, the United States ranks first, followed by the United Kingdom and China.

The preferred property for investment is multifamily residential, followed by office, industrial, retail and hotel.

Watergate Hotel Relegated to White Elephant Status

Wednesday, July 29th, 2009

watergate01The Watergate Hotel – the site where the “third-rate burglary” that sparked the biggest political scandal in American history and brought down Richard M. Nixon’s presidency was plotted — is now a distressed commercial property that failed to find a buyer at a much-anticipated auction.

The 251-room hotel, with its spectacular views of the Potomac River, was taken back by its owner, PB Capital, a subsidiary of Deutsche Postbank AG after no bidders expressed interest in purchasing and rehabbing the property in an auction held by Alex Cooper Auctioneers.  Monument Realty, which in 2004 bought the 12-story hotel with financing from the now-bankrupt Lehman Brothers, owes PB Capital $44.3 million and is in default on the property.  In addition to paying off the loan, the new owner would have to rehab the Watergate, which has been closed for several years.  Built in 1967, the legendary hotel needs an estimated $100 million in renovations to bring it up to 21st-century standards.

David Furman, an attorney with Gibson Dunne, is not surprised that the hotel did not interest bidders.  “Lenders usually win in these kinds of auctions because they have the ability to credit bid the full amount of their loan.  There is usually a negotiated settlement before or after the auction.  It is rare that there is an upset at a foreclosure sale.”

According to Monument principal Michael Darby, he has commitments from new investors to restore the Watergate as a five-star hotel.  Another developer, Robert Holland, wants to buy the Watergate and is in talks with the United Arab Emirates-based luxury hotel chain, Jumeirah, to operate it.

Wall Street Relocating to Constitution Avenue

Friday, July 17th, 2009

America’s financial capital is now Washington, D.C. With Congress and the White House acting forcefully to stop the bleeding resulting from the worldwide financial crisis, numerous investors and brokers are relocating from New York to Washington because that’s where the action is these days.

wall-street-flagOne of the nation’s healthiest metropolitan areas, Washington is benefiting from government hiring as the Obama Administration works to strengthen the nation’s financial system.  The collapse of prominent investment banking firms such as Lehman Brothers and Bear Stearns has triggered increased scrutiny of large banks and created a need for additional workers with auditing and investment expertise in government regulatory offices.

The government’s deep involvement in the financial sector is bringing in investment that in other times would have gone to Manhattan.  German banks, for example, are investing significant dollars in hotels and office buildings.

According to Ramon Kochavi, regional manager of Marcus and Millichap, “The government will grow.”  Kochvai foresees declining defense contracting and an expansion of biotech firms under the Obama administration.  New R & D firms are opening facilities in Rockville, MD, and along Virginia’s Dulles Corridor to support the National Institutes of Health in Bethesda, MD.  Medical services growth is also expected as access to healthcare is a national priority.