WASHINGTON, DC-With much fanfare sequestration went into effect earlier this year. Since then, with equal fanfare, the Administration's critics have pointed out that the warnings were overblown. But were they really?

At face value, the macroeconomic indicators for the DC area show that impact has indeed been muted. The Washington Post, just last week, reported that since the spending cuts went into place the area "added 40,000 jobs…income-tax receipts surged in Virginia…[and] few government contractors have laid off workers."

These are undisputable facts. But that doesn't mean sequestration is turning out to be a benign economic event. GlobeSt.com dug through recent earnings reports of commercial real estate companies with operations in Washington DC or that are based in Washington DC and found quite a few examples of, if not pain points, then localized areas of concern. And to be fair, we also found comments along the lines that sequestration has not been as bad as expected.

In this article and over the next few days we will be touring some of these reports to give readers a sense of sequestration's impact – to date – in the region.

Chesapeake Lodging Trust, all in all, in thrilled with its DC-area hotel adjacent the new baseball stadium in the Capitol Riverfront.

It is a "high growth area of DC… robust with tremendous development of office, retail and residential that will drive demand for our hotel," according to comments made CEO James L. Francis in the call. The REIT's first quarter results were helped by the inauguration, "but given the sequestration impacts we expect the remainder of the year to be challenging. For the year we expect low single-digit RevPAR gains."

Ryman Hospitality Properties, a Nashville, TN-based REIT, definitely felt the effects of sequestration in the recent quarter. It noted that Gaylord Hotels occupancy declined 1.2 percentage points over the same period last year, a drop driven primarily driven by short-term cancellations' increase and Washington DC market's government-related business impact. A significant number of these cancellations materialized at Gaylord National as several large government-related groups cancelled on short notice as sequestration took hold, it said.

Dallas-based Ashford Hospitality Trust's Jeremy Welter, EVP of Asset Management told listeners on the recent earnings call with sequestration "we are seeing more impact to DC than our other markets. That's definitely true."

But, he adds an important distinction – which is that most of the cuts that the government has been making in 2011 and 2012 had a bigger impact than sequestration itself.

What hurt with the cuts in 2013, he continued, is that they are spread over 7 months instead of 12 months for next year. "So, sequestration is going to have a bigger impact all the way through September of 2013. And then on a monthly basis of the government cuts in October of 2013 and beyond, we should have less of an impact of sequestration."

PS Business Parks, for its part, is breathing a sigh of relief, in large part because of its particular business model. Marla Hawthorne, EVP-East Coast, told listeners that, for starters, most contractors have been gearing up for the cuts over the last two years. "The fact that it has now been four years since there has been a federal budget has a greater impact, since it has stalled new leasing and slowed the renewal process from the government and large contractors," she also said.

Also, PS Business Parks' focus is on the small customer, she continued. "We are performing well, since the DC market has strong demographics. Unemployment is around 4.3% in the affluent suburban counties that are near DC, and where we own our properties."

Stay tuned for more sequestration news in this multi-part series.

Instant Insights /

Sequestration: Just How Bad Is It?

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