Real Estate Forum - April 2012

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 outsid-ers 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 multi-family, which also requires a steady local job market, is booming.

“In the past
six months,
we’ve seen
investors,
clients of
the firm,
move out of the office
asset class and into
multifamily.”

DEAN SIGMON

Transwestern

The answer to this seeming conundrum is complex and multi-layered. Thanks to the GSEs, financing is easier to obtain for multi-family. Plus, local demographics are in favor of apartments, which are performing well despite the slow economy. On the office side, it’s still a tenant’s market.

However, the crux of the dichotomy
between office and multifamily is this,
according to a recent analysis by Cassidy
Turley: even though local employment is
approaching levels last seen in 2008 (non-
farm payrolls reached 3.011 million in
January 2012) leasing remained stagnant
due to continued rightsizing in the public
and private sectors and move-outs related to
the Base Realignment and Closure plan.

“We estimate the cap rate to be 10%
now,” he notes, “and it’s been less than a
year since we acquired it.”
At the end of the day, though, multifam-
ily is the sector on the upswing of the cycle.
“In the past six months, we’ve seen office
investors, clients of the firm, move out of
the office asset class and into multifamily,”
Sigmon says. “Multifamily simply offers bet-
ter long-term stability and less risk.”

“Stabilized
office
assets
continue to
command
exception-
ally low cap rates given
the broader interest rate
environment.”

SCOTT HOMA

Jones Long LaSalle

The range and type of investor interested in DC multifamily is diverse, with buyers lining up for A-, B- and even C-grade products, says Ari Firoozabadi, president of the Greysteel Co., a nationally focused, locally headquartered investment sales advisory firm. Not surprisingly, the core and core-plus asset class is hotly competitive since it offers a preservation-of-capital strategy as well as an inflationary hedge, he says.

Affluent families, REITs and institutional investors, some partnering with foreign equity, are the dominant core buyers, according to Firoozabadi. “The estimated year-one yields fall into the 3.95% to 5.2% range,” he says. “Financing is cheapest for A properties. Interest only is again available to improve near-term cash flow at compressed spreads.” The B class also has a slew of buyer types, he continues, many of which overlap from the A class, such as institutional investors, funds, REITs and private buyers. In this case, they are betting on estimated year-one yields of 5.4% to 6%, Firoozabadi says. Indeed, if these properties are well located, their yields are considered to be very stable as the top line for rent per square foot in