WASHINGTON, DC-One of the panelists at RealShare Washington, DC, held on February 25, was Brookfield’s Greg Meyer, who was quick to point out that one of the company’s best deals of the year: 1225 Connecticut, which traded to the World Bank for $900 per square foot. In fact, it topped some of the best prices ever realized in the District. “Brookfield is looking to continue growing in this market,” he said. “For the long term, it is a great market for anyone who wants to invest.”
The key words, however, are long term. For every delighted seller--especially one with enough foresight to buy during the market’s trough--there is a buyer wondering if DC is so ahead of the nation that it may actually be entering its own cycle, one where frothy is not an unfamiliar adjective. One attendee, Debra Lacy of Lacy Ltd., whose firm has carved out a niche brokering notable office sales to foreign buyers, told me during a break that while it is seeing some activity and interest from buyers, it is getting harder to close deals because prices are getting higher. “We are returning to a frothy period,” she said.
In many cases, said Jones Lang LaSalle’s Scott Melnick, another panelist, “prices have entered nosebleed territory. It is prompting some investors to decide to develop instead of build.”
However, investors are not about to shun DC as overpriced--at least not most of them. Bidding for Market Square, according to talk at the conference, is fierce, with bidders now in the double digits, according to Cassidy Turley’s Joe Stettinus. And the bids are said to be in the $600-million range. “The easy money has long been made in this market and there is tremendous demand for core trophy assets that are viewed as safe,” HFF’s Andrew Weir, a panel moderator, said. For MarketSquare, “the sales price will reflect the best underwriting assumptions and willingness of the buyer to accept a low return.”
If that sounds counterintuitive to investors that have a choice of vehicles in which to sink money, consider this, Stettinus said.
“The number one priority for investors is preservation of capital-- and it is important for us to keep in mind that returns are a proxy for risk. These firms--overseas buyers, pension funds and REITs--are in Washington is because its perceived as less risky.”
Developers, such as Monday Properties, are reaching similar conclusions as they take on their own risk. “We are taking a risk going on spec for a 600,000-square-foot building,” said Tim Helmig, speaking of the company’s latest project in Rosslyn, VA.
But, he said, the company has carefully laid the groundwork. It can show law firms that they can save $110 million over 10 years with the rent differential if they move to Rosslyn from the District. “Development on spec is still risky but one of the least risky places to do it is on top of a metro stop in this submarket.”
Highlights from the Event |
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WASHINGTON, DC-One of the panelists at RealShare Washington, DC, held on February 25, was Brookfield’s Greg Meyer, who was quick to point out that one of the company’s best deals of the year: 1225 Connecticut, which traded to the World Bank for $900 per square foot. In fact, it topped some of the best prices ever realized in the District. “Brookfield is looking to continue growing in this market,” he said. “For the long term, it is a great market for anyone who wants to invest.”
The key words, however, are long term. For every delighted seller--especially one with enough foresight to buy during the market’s trough--there is a buyer wondering if DC is so ahead of the nation that it may actually be entering its own cycle, one where frothy is not an unfamiliar adjective. One attendee, Debra Lacey of Lacey Ltd., whose firm has carved out a niche brokering notable office sales to foreign buyers, told me during a break that while it is seeing some activity and interest from buyers, it is getting harder to close deals because prices are getting higher. “We are returning to a frothy period,” she said.
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In many cases, said Jones Lang LaSalle’s Scott Melnick, another panelist, “prices have entered nosebleed territory. It is prompting some investors to decide to develop instead of build.”
However, investors are not about to shun DC as overpriced--at least not most of them. Bidding for Market Square, according to talk at the conference, is fierce, with bidders now in the double digits, according to Cassidy Turley’s Joe Stettinus. And the bids are said to be in the $600-million range. “The easy money has long been made in this market and there is tremendous demand for core trophy assets that are viewed as safe,” HFF’s Andrew Weir, a panel moderator, said. For MarketSquare, “the sales price will reflect the best underwriting assumptions and willingness of the buyer to accept a low return.”
If that sounds counterintuitive to investors that have a choice of vehicles in which to sink money, consider this, Stettinus said.
“The number one priority for investors is preservation of capital-- and it is important for us to keep in mind that returns are a proxy for risk. These firms--overseas buyers, pension funds and REITs--are in Washington is because its perceived as less risky.”
Developers, such as Monday Properties, are reaching similar conclusions as they take on their own risk. “We are taking a risk going on spec for a 600,000-square-foot building,” said Tim Helmig, speaking of the company’s latest project in Rosslyn, VA.
But, he said, the company has carefully laid the groundwork. It can show law firms that they can save $110 million over 10 years with the rent differential if they move to Rosslyn from the District. “Development on spec is still risky but one of the least risky places to do it is on top of a metro stop in this submarket.”
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