'We Are In Hot Pursuit': Rockefeller Group Looks To Pour More Money Into D.C. Real Estate
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One of the most well-known names in New York real estate has begun investing in D.C. projects over the last two years, and it is not planning on slowing down.
"We are in hot pursuit, and we have a number of logs in the fire," said Rockefeller Group Senior Vice President Hilary Allard Goldfarb, who will speak May 8 at Bisnow's D.C. State of the Market.
Rockefeller in August 2017 signed a joint venture deal with The Meridian Group to develop Boro Tower, a 20-story office building in Tysons. The project recently delivered with nearly 80% of its 437K SF of office space leased.
After making its first D.C. investment, Rockefeller announced in March 2018 it hired Goldfarb from Bozzuto to lead its continued expansion in the D.C. region. In January, Rockefeller entered a second joint venture deal with Meridian, investing in a Downtown D.C. office redevelopment at 1901 L St. NW.
Meridian Group Chief Investment Officer Gary Block, who will also speak at D.C. State of the Market, said the two joint venture deals have worked well because the companies have similar approaches to office ownership, operations and leasing. He said he hopes to do more deals with Rockefeller going forward.
"Each deal has to work for both of us, but we're two out of two so far," Block said. "The only two times we've talked about doing deals we have done it. We have our own capital and they have their own capital, so it takes a project that is large so we can each put in our own capital."
As Rockefeller looks to make more D.C. investments, Goldfarb said it is in the advantageous position of having a large pool of money it can pull from on short notice, while also not having a spending target it needs to hit.
"I'm sitting on powder, but we have to be smart," Goldfarb said. "It's a really competitive position to be in that for the right opportunities we can move quickly with very significant capital. We also don't have to. So it gives us a real competitive advantage so we can be smart and strategic."
Goldfarb began last year as the lone member of Rockefeller's D.C. office at 1025 Connecticut Ave. NW, but she has begun to grow her team. She now has a four-person staff including Vice President of Development Katie Lenss, who joined in September from Hines, plus design and construction staff. The team is also planning to soon hire analytics and research staff.
"Hiring is hard; attracting talent, keeping talent," Goldfarb said. "I spend a lot of my time on building my pipeline and my team."
While its first two D.C. investments have been office projects, Rockefeller is also pursuing mixed-use, residential and industrial deals, Goldfarb said. It is looking at opportunities to invest in ground-up development and repositionings of existing properties.
"Given how competitive our industry is in this region, it's difficult to be ideological," Goldfarb said. "So what we are looking for are the most compelling deals in our region."
Repositioning projects like 1901 L St. NW have become attractive, she said, in part because they don't require as much new concrete and other materials that have become more expensive in recent years.
"On the construction pricing side, if you can manage risk with a muscular redevelopment scope where everything is new except for concrete slabs, you've mitigated a pricing risk," Goldfarb said.
At 1901 L St. NW, Meridian and Rockefeller launched an extensive redevelopment that added three new floors of office space and a 12th-floor penthouse to the existing building. The development team in November landed law firm Winston & Strawn to lease 90K SF across the top four and a half floors.
"We were able to create a trophy building without having to go ground-up, which made sense from a cost standpoint and a timing standpoint," Block said.
Meridian is working on another repositioning project, Anthem Row, near Mount Vernon Square. The $142M redevelopment of the property at 700 K St. NW has also achieved strong office and retail leasing success.
In Dupont Circle, Meridian jointly acquired an office building with WeWork and plans to renovate the property, where the coworking provider plans to open a 100K SF space. Block also said rising construction costs have made repositioning projects more appealing.
"When you have an existing building, you have a lot more options," Block said. "You can figure out how much repositioning you want to do and the return on cost versus pure ground-up, where it costs what it costs."
Meridian is still looking to do more ground-up projects like Boro Tower, but Block said it has become increasingly difficult to make the deals pencil.
"It was advantageous we were able to commence [Boro Tower] when we did, because construction costs have dramatically increased and it's probably a lot tougher to do today than it was when we commenced three years ago," Block said.
Goldfarb and Block will discuss these projects and their outlooks on the market at Bisnow's D.C. State of the Market, May 8 at 1101 New York Ave. NW.