Rebuilding Place in the Urban Space

"A community’s physical form, rather than its land uses, is its most intrinsic and enduring characteristic." [Katz, EPA] This blog focuses on place and placemaking and all that makes it work--historic preservation, urban design, transportation, asset-based community development, arts & cultural development, commercial district revitalization, tourism & destination development, and quality of life advocacy--along with doses of civic engagement and good governance watchdogging.

Wednesday, June 26, 2013

Big properties to develop with city government involvement makes the Washington DC real estate market as a top 10 "disrupter"

According to the trade magazine National Real Estate Investor ("10 Disrupters: A Look at Key Figures Shaping the CRE Industry"), DC Mayor Vincent Gray's initiatives to develop St. Elizabeths East Campus (and maybe Walter Reed Medical Campus) make him a key "disruptor" that can change the national real estate market, in the face of the slight downturn in the metropolitan real estate market because of the Federal Government's budget inaction and disruption within the US House of Representatives, which discourages the GSA from going to Congress with lease proposals in higher cost submarkets in the area.

They're big projects, but I don't know how disruptive they'll be.

Unfortunately, from the standpoint of innovation districts, both properties are disconnected from city that lies outside their lot lines, which reduces the positive spillover benefits that real estate development can generate on neighborhood and district improvement.

Some of the other disrupters listed in the article include:

• the booming college student apartment market (in the DC area, you see this in projects on Rte. 1 in College Park related to the University of Maryland, and in one of the apartment buildings constructed at the Town Center proximate to Prince George's Plaza in Hyattsville, and in two new dorms being constructed on 4th Street NW for Howard University);
• Related Companies, their Hudson Yards project in NYC and other projects;
• a thriving CMBS (commercial mortgage-backed security) market;
• equity available in the market for distressed properties;
• reduction in capital for multiunit housing mortgages guaranteed by FreddieMac and FannieMae;
• the high economic return from sustainability (and the work of Professor Nils Kok);
• health-care/senior related REITs, specifically Ventas.

Separately, the international commercial real estate brokerage CBRE says that DC is the 20th most expensive commercial real estate market in the world ($97.80/s.f. in total occupancy costs), Midtown Manhattan in NYC is 10th ($120.60/s.f.).  San Francisco is 22nd ($96.00/s.f.).

Central Hong Kong is #1.

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At 9:59 PM, Blogger IMGoph said...

in the DC area, you see this in projects on

on what?

At 9:29 AM, Blogger Richard Layman said...

oops. see the post.

At 1:55 PM, Anonymous charlie said...

Glad to see reality coming back into office price discussions. Downtown DC is far cheaper than midtown NYC, and is comparable to downtown NYC. Given the spread (NOMA/Navy Yard) DC as a whole isn't that expensive.

Usually when I talk to people who have moved companies out to Tysons they cite the parking expense vs DC as the biggest cost factor. Actual real estate not so much.

At 3:44 PM, Anonymous Anonymous said...

From today's WaPo--don't you hate being right... ; ^ )

Foreign investors snap up Washington real estate at an accelerating clip
By Jonathan O'Connell,
Foreign investors are pouring money into downtown D.C. office buildings even as many properties in the Washington suburbs struggle with stagnant leasing and growing vacancy.
Overseas investors have purchased or are under contract to buy nearly $1.9 billion in Washington office properties so far in 2013, according to data assembled by the services firm Jones Lang LaSalle. That tops the total of $1 billion for all of last year and is more than double the $807 million that foreign investors put up in all of 2011.
With the federal government undertaking stimulus spending measures to bolster the economy, Washington emerged from the recession more quickly than most commercial hubs, and foreign investors — looking for stable assets in a sea of uneasiness — began putting money into some of the city’s top downtown properties and development projects.
Middle Eastern sovereign wealth funds became primary investors in the city’s two mammoth downtown projects, the Marriott Marquis Convention Center Hotel (Abu Dhabi) and CityCenterDC (Qatar). Both are under construction.
Rather than waning as sequestration cuts began to hit Washington in March, interest from abroad appears to be strengthening. Foreign sales account for 75 percent of all investments in Washington commercial real estate this year, after not topping 30 percent in the previous three years and registering just 1 percent in 2006. On average, foreign firms accounted for 17 percent of all sales since 2001.
Companies from countries such as Korea, China, Germany and Saudi Arabia have been scouring the Washington market for fully leased downtown office buildings, said Bill Prutting, managing director at Jones Lang LaSalle.
In years past, when a building went up for sale, “the investor used to be the local family or the domestic pension fund,” Prutting said. “Now, we have a lot more exotic investors from overseas who are coming into especially our market and other markets as well.”
The $1.9 billion invested this year includes a $300 million stake in Carr Properties being acquired by Alony Hetz Properties and Investments, one of Israel’s largest real estate investment companies. Carr’s portfolio includes 20 buildings and four development sites, most of them office buildings downtown.
Last week, Hines Interests announced that it had agreed to sell 1200 19th St. NW, an 11-story building whose tenants include McKinsey & Co. and the law firm Squire Sanders, to Fosterlane Management, the American real estate arm of the Kuwait Investment Authority, a sovereign wealth fund. Terms of the deal were not disclosed.
That deal follows a $600 million February deal in which Norges Bank, manager of Norwegian Government Pension Fund Global, bought five East Coast office buildings, including the Evening Star Building at 1101 Pennsylvania Ave. NW and 1300 Eye St. NW. The next could be a $370 million purchase of Georgetown’s Washington Harbour by Korean investors advised by Simone Investment Group, Prutting said, though the parties have not announced a deal.
The big numbers downtown are in contrast to the local suburbs, where vacancy is rising and leases are hard to come by. The office-vacancy rate in Northern Virginia has grown to 16.2 percent, according to data released last week by CBRE Group, the highest it has been in 11 years.
But with foreign investors looking to offload large dollar figures, the rising prices actually make Washington more attractive, Prutting said. “The average deal in Washington 10 years ago was probably 75 million,” he said. “Today, the average transaction is probably more like $275 million. That’s an incredible shift.”

At 6:02 PM, Blogger Richard Layman said...

... ah yes. Thanks for the reminder (not about being right necessarily) but about the general point, which I'll have to blog about.

At 3:10 PM, Blogger Arturo Garcia said...

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