Is Everyone In America Buying a Condo?
|
|||||||||||||||
 Mark Bisnow Moderator Mark Bisnow has been a lawyer, politico, and businessman in Washington for nearly three decades and publishes a growing series of electronic newsletters, including Real Estate Weekly, which features interviews with top Washington- area experts. He also writes“BizKnow,” a weekly personality column in the Washington Business Journal. |
 |
Anthony Lanier Anthony M. Lanier founded EastBanc, Inc. in the late 80s, a Washington D.C.-based real estate investment firm specializing in the acquisition, redevelopment and management of real estate assets. With a focus on urban mixed-use investment, EastBanc’s developments include upscale retail, luxury residential, Class A and Class B office and luxury hotel property types. Since 1987, EastBanc and its partners have acquired and/or developed over four million square feet, which represents an investment value in excess of $1 billion. Washington’s West End and Georgetown neighborhoods, as well as its Central Business District, are the core markets for the group’s most recent development projects. “Washington today doesn’t reach the housing prices of Milan, London or Sydney. While all of us are affected by bad markets, our buyers are less affected by a recession and most likely won’t be affected by the inability to deduct taxes.”
|
 |
Monty Hoffman As founder and CEO of PN Hoffman, Monty Hoffman has developed extraordinary upscale condominium residences and mixed-use properties in Washington, D.C. Under his leadership, the company is deeply committed to serving the neighborhoods of the District and has built over 30 developments throughout the city. “There’s been so much negative news over the last six months, but I also feel that we’re starting to hit an affordability ceiling. While we might have 70,000 jobs coming into the area [a year], how many of those jobs can afford $800,000 condos?” |
 |
Michael Darby Michael Darby is a principal and cofounder of Monument Realty, one of Washington’s leading real estate development firms. Along with partner, Jeffrey Neal, he oversees the firm’s diverse work throughout the region, including a portfolio of more than five million square feet of office, and over 3000 residential units. Current projects include Belles Rives at The Watergate, Dumbarton Place, Potomac Place, The Connecticut, and Columbia Center in Washington, D.C.; and The Odyssey, The Hawthorn, and The Palatine in Arlington, Virginia. “[Washington is] the center of the world financially and politically. That’s something that we have that no one else will ever have.”
|
Mark Bisnow: What are each of your marquee
projects?
Michael Darby: We have approximately five thousand
condo units in Maryland, Virginia, and D.C.
The Watergate is one of the highest-profile. We
have four projects in Arlington Courthouse and a
bunch on Glebe Road. Eventually, we will build
condos down by the ballpark in Southeast. We
have seven hundred units in Southwest that we’ve
nearly completed and some projects up on 22nd
and P Street, N.W.
Bisnow: What does a typical condo among your five
thousand units cost?
Darby: They range in value from $500,000 in
Arlington to a $1,000 a square foot at the Watergate,
depending on the market and location.
Bisnow: What percentage of Monument’s activity is
in condos?
Darby: We have about $3 billion of development
underway, about $1 billion of that is office space
and the other two-thirds is condos.
Anthony Lanier: At the moment, our key project
is 22 West, also known as the Zinc Building, but I
always think our latest project as our best project.
Unlike Michael (laughs), who differentiates by
which building will arrive when, I have a clear
notion of my last building. Our condo activity is
about 60 percent of our overall activities.
Monty Hoffman: We have a project on Military
and Western Avenue, N.W., called Chase
Point with 108 luxury condominiums in the
heart of Bethesda; Parcel 31 will have 220
condominiums and a large parking garage;
and Union Row Flats at 14th and V Street
N.W. with 280 condominiums; and a couple
of warehouses that we’ll be refurbishing. We
also have a project called the Alta on 14th
Street between L and Thomas Circle, with 126
condominiums for your younger cosmopolitan
buyer. In Alexandria on Carlisle Square,
we will have 145 soft lofts, a cross between
the more sophisticated condo product and the
loft product. Finally, we have a project starting
up over at the Southeast Federal Center of an
existing munitions warehouse on the east side
of the property near the Navy Yard.
Darby: That’s 16 million condominiums.
(general laughter)
Bisnow: I’m reminded of an Esquire Magazine
cover around 1990 that had a picture of a monkey
and the caption said, “Is everyone in America
writing a screenplay?” Washington Life should
have a cover: Is everyone in America buying a
condo? Is this a fad or not?
Hoffman: Oh, I thought you were going
to ask, “Is everyone in America building a
condo?” I don’t believe it’s a fad, but a change
in lifestyle. People are rejecting the outer suburban
lifestyle and opting for a condominium
lifestyle where they take their discretionary
time to travel and enjoy life instead of being
strapped to the house.
Bisnow: Are people taking their places in the
large houses in Potomac, or if this were the stock
market, should we be shorting Potomac?
Hoffman: What’s happening is that you have
the empty nesters who are moving back into
the condominiums and their kids are moving
into more of the loft-style condominiums.
Those with small children are moving to the
single-family homes.
Darby: I still think the future is in mid-level
housing in suburbs like McLean and Potomac
because it’s only $250 a foot for a four to sixthousand-
square foot house. What can you get
downtown for $250 a foot?
Lanier: But you’re shorting Potomac with that
statement because it didn’t sell at $250 a square
foot yesterday.
Darby: Short it or buy it, same thing. I want as
much of it as I can get, because I think after a
while people are going to say “I’ve done the
condo thing, it’s been great, but the baby is
getting older and I want more kids and more
space.” But the whole market is growing in size.
The latest statistics show an increase of 80,000
jobs a year. If 80,000 people are coming to the
area, then we’re not building fast enough.
Bisnow: How much of building condos is speculative.
To the extent it’s speculative, how dangerous
is that?
Lanier: All of it.
Darby: Until it’s built and you’ve had someone
close, it’s speculative. The risk for us is massive,
because if they put down $15,000 to buy a
$300,000 condo, and the market turns, they
can walk away.
Bisnow: So, what are the chances that the market
could turn? How confident are you that there will
be an ample market for all the condos you are all
building?
Darby: We’ve already seen it turn a little bit
recently. We’ve seen it transition from a frenzy
of investors to buyers sitting back and taking
another look. The owner/occupiers or the true
buyers, the guys that we’re after, are looking and
a bit nervous, and are coming back a couple of
times. We’re seeing an adjustment now which
I welcome because we get the investors out
and sell to our true market. The next stage is
what happens with interest rates and affordability,
pushing prices up. The investors created a
market where they kept pushing numbers up
and prices are getting to the point where people
can’t afford it.
Bisnow: Do you agree that prices are too high?
Hoffman: The market shifted this summer, and
although October was pretty good, I believe
that investors are sitting on the sidelines now.
There’s been so much negative news over the
last six months, but I also feel that we’re starting
to hit an affordability ceiling. While we
might have 70,000 jobs coming into the area,
how many of those jobs can afford $800,000
condos?
Lanier: I don’t think there’s a danger of overbuilding
as a general statement in Washington,
D.C. It depends on where your focus is; today
worldwide the focus is and should be on the
baby boomers because they have the highest disposable
income statistically in the history of our
world. That market is a very neat market and
has a very, very narrow supply because nobody
has any taste.
Bisnow: Sorry?
Lanier: In this city, some start off with a sense
of mediocrity. The people most disbelieving of
the quality of the city are many of the citizens
themselves. I mean, it’s a terrific city, but whenever
you want to do something forward-thinking,
it’s met with disbelief that it could work. I
noticed it with the Ritz condominiums and we
had the same experience when we developed
Cady’s Alley. Everybody said that nobody wants
to lease off the street. People do not believe that
we can achieve something as a city because in
[their] minds we are mediocre. In fact, we have
a huge amount of disposable income looking for
a sense of quality and quality of life.
Bisnow: How much money do you pay for upscale
condos today?
Lanier: Let’s take this number Michael put into
the room of $1,000 a square foot which to most
people in this city is an absurd number. While
it has been achieved in certain instances, it’s not been achieved on a broad basis.
Darby: You have to be in a penthouse overlooking
the Potomac River for $1,000 a square foot.
Bisnow: How many square feet and how much
are your penthouses at the Watergate?
Darby: There are six 5,000 square foot penthouses.
We’re asking $8 million. But we offer
different products in the mid-range and the
upper end, giving you a real choice, something
that’s interesting. But to do that in Washington
has always been hard because it is a challenging
city in terms of its architecture. There are
a lot of boxes that are controlled by the height
and the amount of square footage you can put
on the sites. We can’t just differentiate high-end
projects by the marble, etc., but by the architecture
and the quality of the product from the
visual aspect, the innovative aspect.
Bisnow: So there’s news that this bi-partisan tax
commission has recommended severe limitation
of the mortgage deduction. Are people looking at
your product immune to that? Secretary of the
Treasury John Snow says they’re studying it very
seriously, and it may take them quite a while to
reach a conclusion, but the president’s supposed to
put out a comprehensive tax proposal by 2006.
How would that affect you?
Lanier: I think that’s an interesting question for
all of us. There are very few countries in the
world that allow you full deductibility of the
interest for housing. Nevertheless, their average
housing prices are far superior to ours. Washington
today doesn’t reach the housing prices
of Milan, London or Sydney. While all of us
are affected by bad markets, our buyers are less
affected by a recession and most likely won’t
be affected by the inability to deduct taxes. But
certainly, it pushes the rental market again.
Hoffman: You already have a million dollar
cap on interest rate deductions. So to those
extreme high-end buyers it’s probably immaterial.
However, I do think it would have a slight
effect on your $800,000 to $900,000 home
buyer who is already stretching.
Bisnow: And how about if interest rates keep
rising?
Hoffman: Fortunately, the long-range mortgage
picture hasn’t really adjusted at all. I think that
it will put some pressure on mid-level buyers,
but I think we’ve got to go up another pointand-
a-half or so for that to really be material.
Darby: Pricing will adjust accordingly because
we’re not going to sit with empty buildings.
If we’ve already built the building and
interest rates go up so less people can afford
them, then we’re going to adjust the pricing.
We just won’t make as much over time as we
did before. Then hopefully the whole thing
adjusts and land prices go down because the
land component is a greater component than
it was before. But these are just minor adjustments
in any financial or business model.
Bisnow: Are you guys like the oil companies and
just frowning in parts?
Hoffman: No.
Lanier: I think it’s interesting. The condominium
business today is an escalating commodity
on costs. The landowner today has sucked out,
I would say, the predominant portion of the
profit. Our pricing structure is nothing else but
reflective of the increasing costs, but unlike the
oil companies who have locked in their agreements
many years in advance, we’re buying
land, building on it ad hoc, and reselling.
Darby: And we’re buying construction . . .
We’re trying to factor in whatever the market
is at that point in time into the resale, too.
Hoffman: Increased interest rates are putting
some pressure on the pricing side supported by
continued inflation on the construction side.
Although pricing on the land can adjust, and it
will, at some point, I don’t for a minute think
we’re in any kind of a bubble but I think there
may be a leveling of appreciation on the resident
side.
Bisnow: Is there greater interest in new
buildings?
Hoffman: There’s a certain romance in the
inherent design elements of the older buildings
with older architecture, higher ceilings and fat
moldings, but the newer buildings with all the
high-tech aspects, large windows and greater
light and air probably override that. Some
buyers are attracted to these older buildings
and some to the newer ones.
Darby: They want new appliances, cabinets
and bathrooms. By the time you do all that
they’re getting mostly new anyway. After we
complete the inside of the Watergate, nothing
will be old, and everything inside will come
out, everything. What’s going to remain is the
outside façade.
Bisnow: What’s the coolest new feature or kind of
room that your customers are looking for?
Darby: I have my tranquility room in our Telluride
house, with a mountain view. The masseuse
comes to my room instead of me going
to the bloody massage place.
Bisnow: What are mere mortals looking for?
Lanier: It is not about a feature anymore.
We’ve gone through the bathroom and kitchen
trend. It’s about quality and space.
Hoffman: The open design of a condo is
crucial; being able to see through, with 11 foot
ceilings and windows to the floor, giving you
a grand feeling that provides drama is what I
think was missing in the past.
Bisnow: What’s the next hot area going to be?
Darby: An exciting challenge is the area by the
ballpark. The proposals will allow us to start
with almost a completely clean slate and design
from the ground up. We can truly create something
special, which is what Anthony has been
talking about, where in Southeast D.C., there could be a twelve block radius where everything
comes together in a truly livable area,
where you don’t need a car.
Hoffman: The waterfront and Southeast is
going to be phenomenal because there are so
many players involved and there’s so much
money moving in.
Darby: But creating something good doesn’t
happen overnight. Think how long it took
for all the restaurants to come in and fill up
around the MCI Center. With the ballpark,
it’s focused, and everybody is there with the
right retail mix, so that period of time could
be condensed.
Hoffman: There are probably a lot of people
who wish they had bought near the MCI
Center and won’t make that mistake in
Anacostia.
Bisnow: Do you see the waterfront as being highend
residential?
Darby: It’s going to be a mix. It’s what Anthony
said: it doesn’t matter what the price point is
internally, it matters what you make the thing
look like externally for it to work. The reason
why low-income housing often looks like lowincome
housing is because it’s been built that
way. But if this stuff is all built together with a
total plan, things won’t look like low-income
housing. It will be integrated into an area that
becomes totally dynamic.
Lanier: See Hundertwasser in Vienna, Austria,
is one of the most visited buildings in the city.
He became famous because he was one of
the painters who appeared naked at his own
venisage or gallery. But he took low-income
housing and made it spectacular with round
windows and odd passageways. It’s an icon in the city.
Bisnow: There are many Virginia readers of
Washington Life who know the metro is coming
to Tysons Corner and people are talking about
reinventing Tysons as a quasi-metropolitan area
with pedestrian traffic. What do you think about
condos at Tysons?
Darby: The problem with Tysons is that it
was never developed well from the start. It’s
amazing that, even with very few sidewalks,
making it hard to move around as a street
friendly community, the values of real estate
in Tysons are going great. There is a development
there now that’s selling for $635 a
square foot and they’re two-thirds sold out of
three hundred units. The beauty of the city
now is that we have these massive nodes all
around where people live, it’s like having ten
or twelve cities within a city, and Tysons is
one of those.
Bisnow: And Georgetown?
Lanier: It has had a new incarnation. Today,
Georgetown is arguably the epitome of where
you would like to be, the most exciting village
in the world. It’s a fabulous club. Once you’re
in the club you have a huge franchise value in
who you see and the people you interact with.
Where else can you go down to a little grotto
to exercise next to the secretary of state?
Bisnow: Why doesn’t it spread across the bridge
to Rosslyn?
Lanier: Rosslyn was built for a totally different
purpose. The challenge for Rosslyn and other
areas is how can you take scale, like New York
has scale, and give humanity to it?
Darby: And why is Washington different than
London, Paris or Rome? Those cities have
operated as urban centers where people lived
and worked for centuries, yet Washington,
until not that long ago, did not operate as successfully.
People were amazed that we did a
development at 11th and M street, an area
five years ago where people wouldn’t have
walked. We have to forget about the past and
truly build a city, so it’s like London and those
cities around the world where the moment
you walk into it you think, wow, isn’t this a
great city. Washington hasn’t quite got there,
but it’s getting there.
Lanier: Washington has the ability to be an
accumulation of neighborhoods. To me, the
ideal city is London, which has an accumulation
of neighborhoods. So I think Washington
has the best of London, and the capability
of the best of New York which is the speed
of commute from one spot to the other. So
you take the better of those two worlds: the
village character and the neighborhoods
one after the other, and the ability to travel
from one to the other quickly and you’ve
got Washington.
Bisnow: Where do each of you live and why?
Hoffman: I live in Potomac because it’s a
balance of fine urban living during the day and
I’m home decompressing on the weekends and
nights. But I’m only twenty minutes from the
office.
Darby: I’m a wanderer but I live in McLean
right now. I have an acre and a half and I have
two kids. I love living there and we travel all
the time, but I like it for the children. I’m
from Australia and I’ve grown to love this city
because of what it can become.
Lanier: With me all big decisions in life have
been by default. Women…(Chatter about the
reason being a woman) I live in Georgetown
because I think it’s the cat’s meow. I live and
build there because I believe that I know more
about the area than anybody else and it’s easier
to build high-end stuff in a high-end area. I’m
very focused on one product type, one goal,
which is lifestyle.
Bisnow: One word response please. What is one
thing you would each change about this city?
Lanier: Vision.
Hoffman: Weather.
Darby: Cooperation. People should spend more
time cooperating, it would help the city.
Bisnow: What is the one thing that distinguishes
Washington from any other city in the world?
Hoffman: Diversity.
Lanier: It has the most dynamic mixture
of power and opportunity.
Darby: It’s the center of the world financially
and politically. That’s something that we have
that no one else will ever have.