8/9/22 Washington, DC Mastermind Meeting

MARK TASKER, NAI KLNB
• Industrial market is still hot. However, there are challenges in acquisition as interest rate hikes are hitting.
• Underwriting at these new rates is not working.
• Cannot find space for 25,000 square feet.
• Good time to be an office tenant with options and incentives.
HARRY DEMATATIS, NAI KLNB
• More flex space than industrial and smaller deals are at 3,7000 square feet with spec suiting all the spaces available at 60-90 days to turnkey.
• occupancy of buildings is still low compared to pre-pandemic averaging 40% occupancy compared to 60-70%.
KYDIN NOURAZAR, NAI KLNB
• With 2-3 office workdays, there are challenges to meet occupancy, especially with the GSA cost efficiency and savings mandates.
• GSA preferred leases – Pre-Pandemic 15-20yrs Post Pandemic 5-10yrs. ) It is hard to backfill the empty space with another Gov and the private sector cannot typically occupy the same space. This is exacerbated by decentralized agency management diversifying the return-to-work patterns between agencies.
• With the smaller offices coming onto a contract, there may be a requirement for hoteling as the office cannot hold the full office population.
• Energy savings and Reduction are attractive to the Tennant and may lead to non-renewal of historical leases.
BRIAN BALL, NAI KLNB
• Seeing three free years in terms of contacts.
DEREK FORD WASHINGTON DC ECONOMIC PARTNERSHIP
• September 14-15 national harbor, ICSC meeting.
• Northeast Heights, Minnesota is being sold to DRA in NYC. The new owner is looking to separate the property into three parcels. There may be a tax incentive reduction.
• With the concessions, there may be some challenges in valuing the real value of the property.
• Connecticut Avenue the bike lanes are reducing 200 parking spaces. This may damage retail as there needs to be pullover space to allow MD and VA drivers to come in for shopping.
• 7/11 leases are coming up and the affordability of the land is pushing out these places as these leases expire. Dependency on the daytime commuter traffic, oversaturation, and the value of the parking lot has caused these places to shut down. It is hard to embed these stores into the new development with the NIMBY attitude.
GREG CIAMBRUSCHINI, PNC REAL ESTATE
• Pre-covid, changes in shopping habits destabilized lending in this sector. Likewise, public and private developers’ offices are very difficult to lend in with any assurance 3-5 years out. even difficult to see TI line items.
• Texas can’t build empty offices fast enough. especially around Dallas, Austin, and Houston. The sunbelt cities are the net winners. Texas has no state income tax. 1.2 billion in net exposure by August. Aside from this most work is now in multifamily.
• Amazon has now put 75 of 100 build suites. On a sublease market 250,000 square feet. locking up 1/3 of American steel on the market.
• Stress constants went up 3 times in the last 9 months. Underwriting is tighter.
• There are challenges that still exist across all products unless the property is very low-levered.
• People internal and external are now looking at the office exposure of anything coded “office” in portfolios. It all comes down to market metrics. when you see a 10 yr. lease with a 3-year concession, that tennant would not be included on the stress test. The real estate needs to convert actual coverage and Stress Coverage, especially as a nonrecourse Loan.
JANISHA RICHARDSON, RIGHT COMMERCIAL LENDING
• The interest rate cap has made underwriting tighter and there needs to be more equity in the game to get approval.
SAMANTHA SUEHIRO, CHICAGO TITLE
Top four markets.
1. multifamily
2. industrial
3. hospitality
4. offices.
There are more sales than finances for interest rate reasons.
EAMON LORINCZ, BROOKFIELD PROPERTIES
• Yards park, these buildings are continuing to be built out with more of a pivot/concentration to multifamily than office space.
BILL BARNES, BARNES REAL ESTATE CO.
• There are some gaps in the purchasing of land. There are many national inventors walking away from deals as they are not worth the risk resulting in a lot of retreading.
• New home sales are single-family rentals. However, many national developers of single-family for rental are getting pushback from municipalities.
• Sellers are slow to adjust their thinking, as the land prices slide. Loudon county is a good market. Anything further out, sales have slowed dramatically. Purchasing of lots has dropped back.