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December 5, 2007

The “R” Word?

First, some H words:  H-A-P-P-Y  H-A-N-U-K-K-A-H!

You’ve heard it at the water cooler, on the cocktail circuit, and in the news.  Debating the chances of an “R” in ’08 (and we don’t mean reindeer or Republican) was enough to get a crowd of 300 out of bed to the McLean Hilton yesterday morning for RealShare’s 3rd Annual Northern Virginia conference, and 275 to the Four Seasons in Georgetown last night for Holliday Fenoglio’s 6th Annual Capital Markets Overview.  The consensus:  a slowdown, sure, but probably not an actual R, especially not in the close-in Washington market which has relative strength due to those nice Feds.

This was the scene at 7 PM last night in the ballroom of the Four Seasons, as clients and friends listen to HFF experts give power points.  Look how still and focused they are, even though a reception of food and drink waited for them just through the doors—this is a subject that has people’s attention.  The view:  2007 was a tale of two investment climates; it all changed mid-year.  Plentiful debt vs. restrictive debt; the number of bidders dropping on listings from a dozen to a few.  White hot ’06 to early '07 is clearly behind us. But '08 prices and activity, even if they slip, are likely to remain historically high.


Is this a reunion of the Landon football team of 1975?  Naw, it's a picture we took of the top HFF crew last night.  Firm head Mark Gibson, third from left, came in from Dallas to keynote.  Blocking for him, from left: Jim Meisel, Steve Conley, Dek Potts, Bob Donhauser, John Duffy and Bill Asbill.  Forecast for regional investment sales in ‘08:  in the $8-9B range (v. $14B in ’06).  Prices down 0-5% in DC, 2-7% inside the Beltway, 5-15% outside—depending on the asset.  Good news?  Real estate as an asset class is still getting significant capital flows as institutions have increased real estate allocation in their portfolios.  And things vary by geography:  Inside the Beltway, or in the very best locations anywhere, office fundamentals remain strong; rising rents balance declining appreciation; foreign currencies look eager to deploy.

Yesterday morning at Real Share:  Brandywine Realty Trust’s Michael Cooper, America’s Capital’s Doug Fleit, Cassidy’s Bill Collins and Real Estate Media’s Rich Kelly.  What we heard from this and another panel:  The subprime mess, volatile stock market, rising oil prices, and falling home prices have created enough uncertainty that perception has become reality and people are holding back on decisions.  Although there are good prices for buyers, deals are difficult to finance as investment committees go back to Underwriting 101 discipline.  Speculative financiers aren’t returning phone calls.  Unlike frothy days, buildings will have to be leased before they’re sold.  Times will get tougher in ’08, but the downturn will work itself out sooner rather than later. 

Mr. Northern Virginia” Spencer Stouffer of Cassidy and Liberty Property Trust’s Michael Jones.  Though Spencer skillfully moderated a panel on 2008 predictions, he couldn’t get much out of Monument’s Jeff Neal except NFL projections; Jeff foresees the Patriots winning the Super Bowl and the Dolphins going 0-16.  Mike reminded us that Liberty acquired Republic Properties Trust’s 25-building portfolio on October 4th.

Tieder, Hoffar & Fitzgerald’s Eric Holmberg and Southern’s Commercial Properties’ Ed Dosik bookend Brian Katz of America’s Capital Partners.  Brian told us it’s “going to be a slow December” due to lack of year-end deals so “it’s time to plan your holiday trip.”  But he’s sticking close to home with his children ages 3 months, 3, and 5.

GVA Advantis’ Tonya Ginter and Fox Architects’ Mark Strandquist. Mark’s son just got home safely from Iraq where he was serving as a Marine.

Mark Levy of ProLogis, right, with Design to Delivery’s Jim Froman and JPI’s Michael Blackwell.  Over the holidays Mark’s heading out to Whistler with his family, but tells us he always manages to meet up with other real estate folks on the slopes.

Other predictions:     

  • DoD and DHS money continues to flow and if the new administration adopts the recommendations of the 9-11 Commission, there will be another spending surge.
  • Opportunities exist in sub-markets like Springfield, Manassas and Aberdeen as the Feds move jobs out to be closer to their work forces.
  • Downtown tenants that don’t need to be there will continue to look for opportunities across the river in Rosslyn/Ballston and Crystal City.  But the space they leave behind will be quickly absorbed.
  • Groundbreakings of spec construction will slow as investment money tightens. 
  • The media will continue to exaggerate bad news.
  • Opinions mixed about the future of Joe Gibbs as Redskins coach
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