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January 6, 2011  

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Want a place to park capital? You’ve come to the right market. Seeking “risky” value-add? In DC, you’re going to compete with investors that can handle lower returns.

John Kevill on Jan. 6, 2011

This morning, JLL’s John Kevill told us DC CRE values have snapped back in anticipation of better fundamentals (his company did three $815/SF-plus deals here in 2010). So the usual suspects of pension funds, German open and closed funds, Asia-Pacific sovereign wealth funds, and onshore/offshore private wealth want DC metro properties for long-term returns. And as for all the capital that’s been accumulating for value-add (like empty tombs or ones with huge rollover)? Those properties are less risky by virtue of being in this region, and firms with lower-risk profiles are going to be chasing the same buildings.

DFS Construction (mini)

901 K St.

Last night, Carr Properties’ Christian Clifford told us Microsoft has leased the 19k SF 11th floor of Carr's 901 K St. (which we snapped in the cool evening hours). No word on the use yet, but the tech giant will move in this quarter. That brings the 261k SF building (delivered in September 2009) to 44% leased, and it has momentum on its side with increasing demand, mostly from consulting and law firms and big-name corporations like US Steel, which moved in at the beginning of 2010. Proposals are out on all available office space—and in some cases two on the same space. Attribute it to the shrinking supply of trophy-quality product and activity like the Marriott Marquis groundbreaking. The market, Christian says, has accepted that Mass Ave and K Street is another gateway to Capitol Hill (similar to Pennsylvania Avenue).

Kramer (Tango) Mini

Dusan Bogomirovic and Jennifer Stange at Occidental Grill on Jan. 6, 2011
Just an hour ago we snapped restaurant GM Dusan Bogomirovic and Carr Hospitality business development manager Jennifer Stange at the venerable Occidental Grill & Seafood, adjoining the Willard. We always feel like we’re walking back in history to eat there—maybe because we are. The restaurant was originally opened in 1906, and its walls feature 1,500 pictures of old-fashioned-looking people who are in fact many of the politicians, sports figures, and others who have dined there over the years. The latest incarnation, re-introduced to Washington when Oliver Carr renovated the hotel in 1986, is getting a facelift: Come April, you’ll be able to do a tasting menu in a new 20-seat “wine room” with leather walls, dark mahogany, and of course plenty of bottles (Dusan’s favorites: wines of Oregon’s Willamette Valley).
chicken sandwich at Occidental Grill on Jan. 6, 2011
The menu changes frequently, including today, when we tried this new chicken sandwich—not like any we’ve ever made ourselves. Also new on the menu: quail with duck sausage, braised pork belly with star anise, ginger, savoy cabbage and candied kumquats, or Dick’s Maine lobster roll (named after the late Dick Carr because he liked to come in and eat it all the time). We could have added those to the order, but we had to come back to work.

1000 Connecticut Ave., DC, on Jan. 6, 2011

This afternoon, we snapped 1000 Connecticut Ave., then promptly called Kurt Salisbury and Jerry Fox over at Arent Fox, which is leasing the first eight of the 33k SF floors. They tell us the law firm's 15-year lease (expansion option in five years) will start in January '13, and STUDIOS Architecture and Mark Pirone at C2C are helping them trick out the interior, taking advantage of the natural light. The window line's 330 partner offices have opaque glass walls, and each of the southern corners has a clear glass conference room overlooking Farragut Park and K Street. Another really fun component: a 150-seat auditorium on the second and third floors with a 17 x 10' screen up front. Sounds great for movie night.

Brendan Owen, Matt Gannon, and Sandy Michaels on Jan. 6, 2011

We also spoke with Vornado/Charles E. Smith's Brendan Owen, sitting, with 1000 Conn. leasing team members Matt Gannon and Sandy Michaels. He says it will top out in March and be ready for additional tenants as early as April 2012. Floors nine through 12 (132k SF), with a sweet view of the White House and the park, are up for grabs. And if a tenant takes two or more floors, it can have exterior signage, too. Vornado will also manage the 385k SF building.



Old Naval Hospital

Over at the Old Naval Hospital (above, circa sometime after the camera but before color film), nine blocks from the Capitol at 921 Penn Ave. SE, some modern things are going on, says Old Naval Hospital Foundation president Nicky Cymrot. It’s drilling 32 350-foot wells to harness the power of geothermal heating (the water that enters the HVAC is a steady 55 degrees, requiring less energy to heat or cool). IKEA’s trying it out with a Denver store opening in 2011. It costs $350k to $400k more than a traditional HVAC system, but the $875k model will pay for itself within 10 years, a worthwhile proposition on a 65-year ground lease. Then there’s the machine-room-less elevator. The grounds will also include a rain garden to gather stormwater, and the lighting will be compact fluorescent and LED. They’re also redoing the main entrance, windows, doors, stairways, hardware, and the historic iron fence.

Hill Center at 921 Pennsylvania Ave. SE, DC

Why all this work? The place operated as a 50-bed naval hospital from 1866 to 1908, then a medical training facility for the Navy, and a private institution for solders and sailors until the early '60s. Administered by the District and used for a variety of purposes since ’64, it has fallen into disrepair. The $9.7M restoration into the Hill Center—which will provide educational and cultural programs and host meetings, conferences, and parties—delivers in June (more info at hillcenteronh.org). It’ll also include nine offices for non-profits on the top floor. Thanks to Karl Kindel for this pic (then-and-now pictures are our weakness).

Mike Ellis
By Mike Ellis, Mid-Atlantic Director of Jones Lang LaSalle
Uncle Sam offered unprecedented levels of spending and expansion in 2010, resulting in the federal government leasing 3.5M SF of new space locally. Our own capital markets team had 45 transactions worth more than $2B. And Northrop Grumman and VeriSign added to the cheer when they relocated their HQs to NoVa. Plus, regional employment rebounded with 43,700 jobs—back to the historical average. In 2011? We’ll have to work hard as Congress calls for austerity in spending. But new government initiatives in healthcare, energy and finance will continue to gain momentum, fueling job growth particularly in the private sector, which traditionally lags 12 to 24 months. This means new work in industries like lobbying/government affairs, financial regulation, and health and human services. Landlords will also be big winners as space is scooped up.



JR Diffee and son

On Monday, we asked what you did on your winter vacation. Reader JR Diffee, president of Colony House furniture, responded. First, he approved Transwestern’s marketing materials for the sale of his showroom on Arlington’s Lee Highway and then headed to Pittsburgh with his 17-year-old son to watch the Caps beat the Penguins at Heinz Field in the New Year’s Day Winter Classic. “It was a great night for hockey,” he says, which is a little tough for our DC reporter to publish considering a “Let’s Go Pens” sign hangs on the wall in her peripheral vision. (Our reporter's mom used to head up customer relations at the Burgh’s Civic Arena, but she reads us just in case she ever recognizes a name from her DC days.)

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