Opportunities Exist with DC Pricing, But Expect a Hold Period

WASHINGTON, DC-Area real estate investors will remember the recent trade of One Bethesda Center with fondness, or at least with nostalgia for the days when the definition of “core” was fully and equally understood by everyone in the market. As 2012 gets underway, the definition of core, at least in the DC area, is likely to change.

“Even now there is uncertainty in the market around the definition of a core investment and that is going to intensify,” Eastdil Secured broker John Kevill tells GlobeSt.com. Eastdil Secured arranged the One Bethesda Center trade, one of the last here for the year.

Because the definition of core is shifting, more uncertain times are ahead, though nothing close to what many secondary and tertiary markets have experienced over the last two years. The other driver behind DC’s new era of uncertainty is, of course, what is happening with the government and in Congress: cutbacks in services are being implemented and likely even more are in the works. This affects local landlords, significantly in many cases.

It also impacts pricing—and changes, or perhaps better put, expands, the definition of what can be considered core, Kevill argues. “Obviously the best properties, in such areas as the CBD and East End will always be considered core,” he says. “But the definition of core can also depend on investors’ view of demand generators that affect the asset.”

And then there are other uncertainties on the horizon. “We are going into an election year in which the government is spending less and some submarkets will suffer for it,” Kevill says. Others, conversely, will benefit. Which submarkets are which, however, is not yet certain and probably won’t be for some time. “So the opportunity for investors is to seek out those submarkets right now before the demand generators are clearly established,” he concludes.