With much fanfare and hyped prognostications, the D.C. Economic Partnership held its annual meeting at the convention center two weeks ago. Brand-name moguls Ted Leonsis and Bill Marriott showed up. The luncheon was preceded by a “development showcase” of more than 70 of the larger real estate projects in the capital city.
More than a few of the real estate pros were thinking to themselves: What planet are these people living on? They knew that many of the projects in the “development showcase” were dead in the water because the money to finance them had dried up.
Nobody wants to talk on the record right now, but I am hearing that big lenders behind many of the District’s major development projects are closing off the money supply. If the reticence developers are seeing this week extends into early 2009, you will be reading headlines such as: “D.C. development boom goes bust.”
No one is ready to predict a total collapse of the market right now, but one real estate developer who is looking at holes in the ground and cranes ready to hoist said: “There is no liquidity in the market right now to finance new development and even to continue some projects that have begun. Lenders are backing out of their projects. It’s bad.”
And that ain’t good for a city government that depends on a vibrant commercial real estate market; it could be even worse for Mayor Adrian Fenty, who has promised to bring commercial and retail buildings to the city’s neighborhoods.
“Emerging markets will take a big hit,” says another real estate pro.
For Washingtonians eager to see their neglected commercial corridors re-energized with money and people, this is bad news. Projects planned for Georgia Avenue and Benning Road and Bladensburg Road could be put on hold or canceled.
For real estate developers and builders prepared to bore ahead with new office buildings and shopping centers, the credit crunch portends an immediate halt. I have heard that major developers have already laid off 15 percent of their staff.
For the city, a halt in development means no growth in real estate tax revenues; and if buildings stop trading, transfer taxes shrink.
Who benefits? Renters, whose rents might go down with a glut in apartments; and opponents of development, who can regroup and fight new battles against a weakened opponent.
I am holding out hope that lenders still see Washington as a safer bet than cities that don’t have the federal government as a primary tenant.
“There’s no place in the country right now I would rather be engaged in real estate than Washington, D.C.,” says Ernie Jarvis, managing director of CB Richard Ellis, a brokerage firm. “Our fundamentals are still good: Great public transportation, great universities, a strong job market; we still have a single-digit vacancy rate.”
But without cash to lubricate deals, that rate will double in a year.
