1/19/22 Washington, DC Mastermind Meeting

Washington DC January 2022 Key Take Aways

• Van Ness Feldman – Andrew Cooper – With the market changing, for instance, the peace corps building flipping, how are the city incentives and other interests influencing the pressures on office stock flips?
• CoStar Group – Chris LeBarton – The value in multi-family has never been greater.  Anything that you can put lab science into the profile will create a buzz. The office is no longer in the product class of interest.  3-2 star office space upgrades really won’t make much of a difference.
• Washington DC Economic Partnership – Derek Ford – With conversions, the government will have to do a fiscal impact statement of the building coming off the tax roll for commercial and onto residential. Because of the tax abatement, the city will need to look to fill the gap for the next 5-10 years. The city is trying to incentivize restaurants into emerging areas. Company incentives will be in three draws, the third of which would be a year after the opening of the business.  The city is interested in obtaining new grocery stores. Hill East just awarded 200 new housing units and will grow well. perhaps a new stadium where the old RFK was. ICSC just opened for the May event. hopefully, back up to 30,000!
• Cherry Bekaert – Steven Kenney – A client positive on office space has consistently been outbid on projects. The winner usually slates the properties for residential conversion.  Waiting to see when and what will a new tax structure look like around property and estate, and Fed rates.
• Cherry Bekaert – Rick Schneider – Looking to see if there will be legislation passed, a scaled-down version of the BBBA with many concessions. Moving further into an election year increases the probability of nothing happening. Senator Ron Ridenhour’s letter to qualified opportunity funds, wanting more information around the actual impact of these projects as being new and not piggybacking on already started projects. The request from the senator is for a deeper analysis of the impacts and information reporting. In Atlanta, clients are needing to invest a substantial sum with a 6-month window to get it done, putting a crunch on good deals. A lot of year end activity, partly attributed to the absence of any tax reform in 2022. The employee retention credit is applicable to those under mandatory shutdowns or decreased revenues and is designed to keep people on the payroll and not necessarily talent. This is separate from the PPP money and came in with CARE and has changed and enhanced since. People can file amended tax returns and receive effectively a tax refund.  You should have less than 500 employees to qualify and may possibly be eligible for the credit even if you qualified for PPP.
• NAI KLNB – Brian Ball, Marc Tasker, Craig Cheney, Keenan Woofter, Melinda Ball – Everyone is reporting that they are very busy with very few clients going out of business. first positive quarter for net space lease in DC. still high vacancies, 16%+.  There is a focus on the conversion aspect of existing to residential. Data centers are crazy, land zoned for “anything” is very tough to come by. INDUSTRIAL: challenges are with landlords pushing rates. With vacancy at 3% across the I-95 corridor, it is becoming a challenge to get these deals done. Flex space may see an increase in activity because the industrial space isn’t there.
• Rockville Economic Development – Richelle Wilson – Buyers are buying campuses and turning them into wet lab spaces. People are looking at lab space in their portfolios. Will there be a peak in the demand, Will it sustain?  With the rate of conversions, what are the job centers to keep and where are we looking to change zoning for a transition to housing will go through a cost impact study as tax bases will shift.
• Kroll LLC – Sam Sherwood – A large number of tax appeals over post-pandemic value dates. Especially considering the pandemic valuation of office space during the pandemic. The DC clean waters projects, the Potomac branch of the tunnels, will require subterranean easements with a total duration of 10-12 years. The Potomac ball fields will be the staging area for this. There is some uptick in retail leasing activity.  Highland Square holdings. has done some conversions with the DC office Typology.
• Atlantic Union Bank – Tom Durrer – Interest rates are going up. Consolidation of BBT and Suntrust to become Truist may lead to redundant branches being closed. Combined effect of the pandemic increase in online banking use. There are a lot of M+A actions in the market and interest rate swaps. There are two new rate indexes SOFR and BISB; these are the indexes that banks will measure against.  Cyber security and ransoms are a HUGE concern.