Foreign Capital Shuns DC? Not Hardly

WASHINGTON, DC—At the start of the year, Washington DC had to absorb the dismaying news that foreign investors—once a mainstay buyer of office properties—were rapidly losing interest in the city. At least, according to a survey by AFIRE, or the Association of Foreign Investors in Real Estate.

Now, another perspective has emerged--again it must be added (more on that in a moment). JLL rebuts the conclusion from the AFIRE survey that foreign investors are losing interest with its own observation, backed by its own analysis of the landscape.

DC foreign investment in office assets hit record-high levels in 2014--$2.1 billion, it says. Within the District, foreign investment accounted for 53% of 2014 transaction volume, 35.6 percent above historical averages.

"Clearly foreign investors still have a very strong appetite for DC assets," JLL Research Director Scott Homa tells GlobeSt.com.

This battle-of-the-surveys, as most local CRE observers know, is not new. Over the past few years AFIRE's survey has chronicled a declining interest among its members for DC properties. JLL inevitably follows up with a counter narrative backed by the most recent acquisition statistics.

There are many theories about the gap; the most compelling explanation is that AFIRE's survey measures buyer intent or sentiment, while JLL tracks actual and ongoing transactions.

For example, as the AFIRE survey was released, two acquisitions were underway by foreign buyers, JLL's Bill Prutting Jr., tells GlobeSt.com. News about the transactions will likely be forthcoming in the coming weeks.

This is not to say that AFIRE's survey, or JLL's for that matter, are off the mark. The news emanating from and about DC is discouraging, James A. Fetgatter, CEO of AFIRE, tells GlobeSt.com. "Foreign investors will read about clashes in Congress or disputes about the budget and form their opinions about DC real estate from those headlines." Nuances about the markets and submarkets might escape them from afar, he suggested. Or, more likely, they might feel that as secondary markets increase in appeal they are a better bet. "At its heart DC is a company town—a government town, that is," Fetgatter says. "If the government is perceived to be not working or expanding then DC will lose appeal."

But while that may be what foreign investors are thinking overall, when actual deals are presented they still are electing to buy here, JLL says.

Indeed in 2014 new foreign investors entered the market, it noted, namely Mirae and IGIS. Also, after acquiring a stake in a TIAA-CREF portfolio in 2013, Norges made additional acquisitions in the District of Columbia totaling approximately $1.1 billion, JLL pointed out.