9/20/21 Washington, DC Mastermind Meeting

Washington DC September 2021 Key Take Aways

• • • Steve Kenney with Cherry Bekaert has been extremely busy with all the upcoming deadlines. He has also been working with his clients on the Employee Retention Credit, he says this equates to ‘real’ money for those that qualify.  He had a client close on 2 buildings in Tysons Corner and will be doing some cost segregation work there, was an exciting deal!
    • Chris LeBarton with CoStar Group said that in his conversations over the last week or so, what he found most striking was that no one is looking on the investment side of things unless it is multi-family or industrial. The DC area has made a remarkable turnaround on multi-family with occupancy way up and year over year rent growth up not only regionally but nationally as well.  Office is still in a ‘wait and see’ stage.  DC office occupancy has not gotten above 30% since the pandemic, we start to see some momentum gathering and then nothing as everyone is waiting with bated breath.  The lifting of the eviction moratorium will be seen in the shadows for several months due to the tremendous backlog in the court system.
    • Emily Anderer with Dochter & Alexander working on 1 medical and 10 dental expansions. Well capitalized groups are in the market, and they are looking for spaces to get at good prices.  Georgetown and 14^th Street was quick to revert to pre-pandemic pricing.  Seeing some interesting things happening with conversions – 2 hotels are being converted to residential and 2 enclosed malls, Georgetown Park and Mazza Gallery in Chevy Chase.  Mazza Gallery is completely vacant except TJ Maxx and the plan is to convert to residential except for 26K SF of retail on the ground floor.  There are a number of very fast micro delivery services popping up and expanding, they typically occupy lower-level retail space and stock 100 – 300 different items in what are called “dark stores,” in order meet their delivery expectations of 15 minutes.
    • Anne Purcell with CoStar Group says that DC is at the bottom of the pack as far as recovery in the hospitality market. In looking at past events, even after 911 people kept traveling for the most part, but during the pandemic people are traveling to beaches and mountains and those rates are through the roof whereas occupancy rates across the DMV are hoovering around 40%.  October is typically the busiest convention month in DC, and it is just not happening!  The lack of international travel is really hurting DC right now and even though international visitors traditional make up about 12%, they stay longer and spend more.  The long-term outlook is good as the fundamentals are there, but the question remains, are people going to travel as much as they used to especially business travelers.
    • Brian Ball with NAI KLNB says that from an investment sales standpoint – if you are a strong tenant in a sale leaseback scenario you are going to see record pricing, other than that investment sales are challenging at best. Class A still has a cache that new investors will go out and get and it’s a statement and believing in inflation going to come back as we get back to normal.  Everything below that is a challenge because the concessions are abundant and owner are not turning the first dollar for 5 years, when you are getting $150-200 SF in tenant improvements plus free rent for 15 -20 months on 10 -15 years in addition to all the other fees, it just does not ‘pencil.’  Amazon is making major plays especially for anything near airports as they attempt to eliminate their competition.  People are moving to smaller towns and values are going up and people are paying top dollar for property.  This is causing a change in demand for items so different groups including Amazon are tracking this and trying to set up logistics to services these areas.
    • Drew Cooper with Van Ness Feldman said that he had a client who is ready to break ground and start construction on a pretty significant office building downtown next month.