John Hancock Still Solid on DC But Some Investors Have Questions

WASHINGTON, DC—Last week Boston-based John Hancock Real Estate reconfirmed its commitment to the DC market with the announcement that it was the buyer of 1750 Pennsylvania Ave., NW, the 278,916-square foot office that Vornado Realty Trust announced it was selling last month.

"DC remains a gateway market for both us and our investors," Edward Willcocks, global head of Asset Management for Manulife Real Estate tells GlobeSt.com. John Hancock is the US division of Manulife Financial Corp., a Toronto, Canada-based life insurance company which invests in four gateway markets in the US, one of which is the District and surrounding areas. The other cities are Boston, San Francisco and New York.

So it is telling that the company is continuing to invest here even as other foreign investors have been scaling back their exposure to the city in favor of other areas, even secondary markets.

It is also telling that some of the investors that work with the life insurer are starting to have the beginnings of similar doubts about DC. Says Willcocks: "Some of the slower growth of last few quarters has been a point of discussion among investors."

However, he continues, investors are still content with the pricing, which is viewed as equal to the risk-adjusted returns they generally reap. Generally speaking -- that is, this is not necessarily indicative of the life insurer's portfolio -- DC office properties are returning unlevered internal rates of return in the 7% to 8% range.

As long as that remains stable, investors with similar goals of John Hancock are not going anywhere. "Most of the investors we work with, and this includes ourselves, like the strong fundamentals that DC offers -- the safety and security of the tenancy and the fact that it is a supply constrained market," Willcocks says.

The company owns either for itself or on behalf of other investors 2-million-square feet of office, residential and land, with 1.3 million square feet of that devoted to the office asset class. There are seven buildings in this category, including its newly-acquired office from Vornado. These are 1100 New York Ave., NW, 1850 M St., NW, 750 17th St., NW, 4501 North Fairfax Dr., in Arlington, 3051 Mount Vernon Ave., and a ground lease in Owings Mill, Md., consisting of 566,280 square feet at Richmar Rd.