Prepare yourself for the next round of doomsday predictions from economists forecasting the coming crash in real estate values.
This time the sky is supposed to be falling on office buildings and other commercial developments. Loans coming due on big buildings will push developers into default and foreclosure. The economy will swoon; we will all suffer.
Not if you live in Washington, D.C.
While the commercial real estate markets in major cities across the country are teetering, downtown D.C. seems to be coming out of the credit crunch of the past year.
Take last week’s sale of a glass office building on the corner of 20th and K streets NW. Vornado Realty Trust announced that it had sold the 250,000-square-foot office building to Deka, a German investment fund. The Germans paid handsomely. Their check for $207.8 million translated to $830 a square foot, which made the Vornado sale among the highest ever.
As the Wall Street Journal said last week, the Washington real estate market is rivaling New York City’s in value and demand.
“It’s a great sign,” says Gerry Widdicombe, director of economic development for the Downtown D.C. Business Improvement District, “but I can’t make any global statement about the health of our market. We have eight million square feet coming on line; our vacancy rate might go up.”
Widdicombe might be hedging his bets, but I see a sign that property in the nation’s capital has once again proven its value to foreigners. Since the 1980s, I have seen waves of foreign investors risk millions for hot downtown corners. The Canadians came first, followed by the Brits and the Germans and the Japanese – the Dutch and the Australians. And the Saudis.
The Germans paying top dollar for a K Street building is hard currency proof of D.C.’s value. Downtown D.C. is the Fort Knox of commercial real estate.
“The stabilizing effect of the presence of the federal government adds a factor that other major U.S. markets – New York, Los Angeles, San Francisco and Chicago – can’t duplicate,” says Ernie Jarvis, who manages CB Richard Ellis’ D.C. operation. “The core of the central business district remains steady.”
Even boosters like Widdicombe and Jarvis can’t ignore the fact that vacancy rates in office buildings have hit double digits for the first time in a decade. But they are quick to add that developments far from downtown – north of Union Station and along the Anacostia waterfront – are slow to lease and drive up the vacancy rates. They are both expecting the growth of the federal government to fill the buildings with government workers, lobbyists, lawyers – the usual downtown denizens.
The good news for Washingtonians, whether they are in on the deals or not, is that a rebound in the commercial real estate market will replenish the lost revenues in D.C. tax coffers.
The Germans might own that flashy, new glass building on K Street, but they pay taxes to fund our cops and schools.
It’s a win for all.
E-mail Harry Jaffe at [email protected].
