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CoStar: Foreign investors still interested in D.C.’s office market

Recent transactions have reaffirmed overseas investors’ longtime interest in the District of Columbia’s core office market. Over the past two quarters, foreign capital was the driving force behind three of the five largest sales of office property in the District.

Late last year, Mitsubishi Estate New York, an affiliate of one of Japan’s largest real estate developers, acquired 1100 First St. NE, in a joint venture with the Rockefeller Group, a private corporation owned by Mitsubishi Estate Co. Ltd. The 12-story LEED Gold-certified office building developed in 2009 by Tishman Speyer sold for $180 million, or roughly $518 a square foot.

In January of this year, Mitsui Fudosan America, subsidiary of the largest real estate investment firm in Japan, Mitsui Fudosan Co., purchased an 80 percent leasehold interest in the historical Homer Building. Located at 601 13th St. NW, the investment stake of $252 million values the asset at approximately $747 a square foot.

Most recently, NSP Ventures, also a Japanese real estate investment firm, acquired the U.S. Mint Headquarters at 801 Ninth St. NW for $147.5 million or $625 a square foot. The property is fully leased to the federal government until 2019.

While the average price for office buildings in the District has settled in the $400-$500 a square foot range in recent quarters, in these representative deals, investors paid much closer to the more than $600 a square foot average price found at the peak of the market in early 2007.

According to economists with CoStar’s Property and Portfolio Research, the District of Columbia’s core office market has long been considered a pricey safe haven for real estate investment, benefiting from its relatively stable federal government employment base and job growth in recent years.

During the recent tumultuous economic conditions, so-called “trophy” office properties filled with tenants under long-term leases are especially attractive to global investors seeking stable income streams.

Jared Cobert is a research analyst with CoStar Group in Washington.

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