Rockrose Development played a game of chicken—a calculated game of chicken—as it negotiated for its latest buy in the Washington, DC area this spring, eventually scooping up a CBD office asset, 1776 Eye St. NW, for $119.6 million. The asking price had been $140 million, but between contract and closing, a fortuitous (for Rockrose) event happened: the main tenant, Nuclear Energy Institute, decamped, opening up a 50,000--square-foot hole.
Rockrose knew this was a possibility, and in fact was quite pleased at the turn of events. It got the building at a lower price and with the opportunity to add value.
In a way, the company is still playing that game of chicken, since vacancies in the DC area show little sign of budging. They averaged 11% at year-end, according to Jones Lang LaSalle figures. Rockrose will have its hands full filling the space…or will it?
Craig M. Deitelzweig, head of the office division for New York City-based Rockrose, doesn’t think so, but he acknowledges the need for caution. “We’re being fairly conservative underwriting rent growth,” he says. “For value-add assets, such as 1776 Eye St., we’re underwriting for rents after improvements are done and we’re not figuring on any market growth this year.” In 2012, the firm projects 3% to 5% growth in rents with a continuation of growth through 2016.
Meanwhile, 10 or so miles away in Wheaton, MD, Robin Williams and Dean Sigmon, SVPs of Transwestern’s Mid-Atlantic multifamily group, are listing Glenmont Crossing, a 199-unit, garden and townhome community near a Metro stop.
The property has a lot to be enthusiastic about. It’s one of the few in the area with townhomes, it’s transit oriented, near a major park and a grocery store. However, this is a community in a suburb that tends to be blue collar and straddles the Beltway. Still, the brokers expect Glenmont Crossing to generate several bids, eventually selling in the mid $30-million range, an excellent price for the area. Given the way apartments have been trading, it probably will.
An investor in a Washington, DC CBD office asset that is cautious about rent growth? A suburban multifamily property poised for a bidding war? The answer to both questions is yes, and for brokers active in the area, none of this is news, but outsiders can wonder how the nation’s capital got to this point. Home to one of the most stable and secure employers in the world—the US government (recent shake-ups at GSA not included)—the district’s office market can best be described as lackluster in terms of occupancy and rent growth. Yet multifamily, which also requires a steady local job market, is booming…
…To read the rest of the story, go to the April 2012 issue of Real Estate Forum.
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