January 8, 2015

What's in Store for Capital Markets and Investment in 2015?

The economy has mostly recovered from the global financial crisis, and real estate investment returns have been healthy, but will potential Fed rate hikes end the party? Hear a Hall of Fame exchange as guru Willy Walker interviews icon David Rubenstein at our Capital Markets and Investment Summit Jan. 15, starting 7am at the DC Ritz-Carlton. And top guns from Starwood, John Hancock, MetLife and Meridian. We've priced the event to keep it small. 

Walker & Dunlop CEO Willy Walker doesn't think anyone can predict where rates will go, but he sees two forces pushing in opposite directions: the Fed wants to hike rates, but investors in Europe and Asia are buying up treasuries. Up or down, the process might make for a flatter yield curve. Willy (pictured above with his three sons in Sun Valley) thinks this will make long-term, fixed-rate borrowing more attractive, relatively speaking. Walker & Dunlop, which acquired Johnson Capital in November, is looking forward to a banner year. 2014 was a trough year for refinancing volumes, but the wave of commercial real estate refinancing has arrived.

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Among our panelists, MetLife regional director Steve Taylor expects to be in the market regardless of where interest rates might move. In 2015 he says he will continue what MetLife has been doing since late 2013: increasing its level of high-quality equity investment. Last year MetLife purchased the 782K SF office building at 555 12th St NW (pictured above) in a JV with Norges Bank Investment Management. Steve says he sees lots of competition in debt and equity markets, but markets seem to be really disciplined in terms of credit metrics. His plan: remain vigilant.

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John Hancock managing director of acquisitions Joseph Shaw (pictured above in his kayak), also a panelist, oversaw some major acquisitions in 2014, including 55 West Monroe, a 40-story, 800k SF Class-A office building in Chicago, for $224M. Most market participants are expecting cap rates to follow interest rates in 2015, but Joseph isn't so sure. No matter which direction rates move, he's prepared to handle any rough waters as John Hancock intends to double its real estate holdings to $20B over the next five years.

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Top stories on Bisnow.com

Mergers Hit Seven-Year Peak in 2014 In 2014, U.S. Renters Paid $441 Billion in Rent
Hessam Nadji: Top US Residential Markets for 2015 BGC's Lutnick Ups Ante in GFI Group Takeover Battle
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DC's Top 5 Office Sales of 2015

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555 12th St NW is a big boy no matter how you slice it. The 782K SF building is both the largest and the most expensive on the list. Manulife Financial sold the behemoth for more than $500M in January to a JV between MetLife and Norges Bank Investment Management. Eastdil Secured brokered the deal. 

PNC Place

While it isn't physically the largest building, it sold for more than $1k/SF in October, the highest on this list and--maybe--in DC history. Even though it's less than half the size of Thurmond Arnold, it went for $392M to Norges Bank (again) this time in a JV with TIAA-CREF. HFF acted as broker for the seller. The four-year-old building is two blocks from the White House (and one block from McDonald's!).

Techworld

Techworld is actually two large buildings, but they are connected by a cool skyway. JBG was able to sell the buildings to the Meridian Group for a cool $320M. The combined 758k SF development was originally built in 1989, but renovated just two years ago (the next planned renovation is a name change). They're home to several GSA tenants, and were 94% leased when the building sold in April.

Lincoln Square

The fourth-largest office deal in 2014 just might be the hippest. The 404k SF building at 555 11th St NW is home to big tenants like Latham & Watkins, and the No. 1 place to watch indie films in DC: E Street Cinema. Rockrose Development paid $300M for the building in October (which we hope entitles them to free popcorn for life). Transwestern brokered the sale for Ralph Dweck.

1100 New York Ave NW

Though it has the simplest name, this building has the grandest facade. The 1940 art deco north entrance to 1100 NY is a former Greyhound Bus station. Allianz picked up the 12-story, 469k SF building for $290M from Manulife Financial (its second sale on the list) as part of a larger deal, in which Manulife will retain a 20% interest, just a few weeks before New Year's Eve. 

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Rosslyn Placemaking Plan

How does a submarket prepare for the expected addition of workers and residents when one of its biggest mixed-use projects is completed in a few years? You make it a fun place to walk around. BID president Mary-Claire Burick, snapped yesterday, says some of the organization's “placemaking” plans for 17 blocks of Rosslyn includes simple items like new benches and planters, but others are fancier like high-tech streetlights, outdoor lounge areas and phone charging stations on wheels.

Rosslyn already has the highest foot traffic (40,000 workers and 11,000 residents) and density (10M SF of office) in Arlington. Placemaking efforts like the streetscape elements plan will prepare it for the completion of Central Place-–350 residential units in 2017, a 570k SF office tower that will house Corporate Executive Board's 1,400 employees, and 45k SF of retail. The project also includes a 17k SF public plaza and observation deck, which will draw more people to the submarket, says Mary-Claire. But if Rosslyn isn't a fun place to walk around, then the buzz won't last long.

BID urban design director Lucia Vasak De Cordre is leading the charge. (The photo behind her is of Rosslyn in the 1930s.) When the BID decided to take on Rosslyn's street atmosphere, Lucia called up her NYC-based industrial designer friend for help. (His projects include NYC's Bryant Park and Chelsea's meatpacking district.) He used the Rosslyn skyline for inspiration and introduced the BID to cutting-edge urban technology and design. The proposed streetlights will be custom designed and have the potential to use solar power, create ambient light that changes color, charge cellphones and cars, and bring WiFi to Rosslyn. Yep, all in a streetlight. (The county has always used historic streetlights, so this is considered a significant change.)

A price tag on all of this is not yet known but Lucia says most of the items aren't that much more expensive than traditional streetscape products. So the BID, with the blessing of its major property owner members, will soon roll out prototypes of some of the features to see how they're received in the community. One of the elements already in use is this mobile solar phone charging station invented during Occupy Wall Street. The BID is also using mobile information carts that its hoping will help welcome more tourists. It is also waiting for county approval for “parklettes” or small seating areas around Rosslyn. If all goes well, placemaking efforts will start by early spring

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