The land is 117 unlovely acres pockmarked with gravel pits and laced with dirt-bike trials. But in the metropolitan area's commercial real estate market, the tract has virtual celebrity status.
It is called Tysons II, and, gravel pits and all, it is one of the most valuable chunks of real in the area. It is across the road from the enormously successful Tysons Corner Shopping Center. It is surrounded by four major roads, including the Captial Beltway. And it is zoned or up to 5 million square feet of office space, or the equivalent of about 25 of the high rises lining the fashionable K Street area of downtown Washington.
But despite all its attractions, there was a brief hush of astonishment in a cramped and streamy Fairfax County courtroom Tuesday when Tysons II was auctioned off for $35 million, a record price for commerical land in the suburbs.
The winner at the court-ordered auction was developer Theodore N. Lerner, who already owned 25 percent of the parcel. Only a year and a half ago, when he first tried to buy out his partners, Lerner insisted Tysons II was worth only $12.5 million.
But in the Wasington-area commercial real estate market, which is part Sothebys auction, part Monopoly and part Las Vegas crap game, what seem sensible comparisons lose their meaning.
In 1979, the Reliance Group of New York was happy to get $6.50 a square foot for the last section of 98 acres it owned directly in front of Tysons II. But shortly after the last deal was closed, Reliance was getting offers of $12 a square foot.
In 1975, a lot at 20th and K streets NW, a prime location downtown, went for $94 a square foot. Less than six years later, a lot at 13th Street and New York Avenue NW, a relatively desirable location, went for $615 a square foot.
Assessing the huge price rises in both the city and suburbs, J. Pat Galloway, president of the Greater Washington Board of Trade, said, "The situation vividly demonstrates the growing strength of greater Washington as a marketplace. Our daily experience with firms interested in investing in this market further demonstrates greater Washington's attractiveness domestically and abroad."
Where will it end?
"Nobody knows," says James A. Baker, senior vice president and sales manager of H. C. Smithys Cos. "We'd like to see it end, or at least slow down. "It's just moving too fast."
The problem, if it's a problem, is that the metropolitan area, in Banker's words, is "inundated with buyers." "There are huge sources of capital out there," says James D. O'Brien, vice president of Coldwell Banker, a major real estate broker in the area.
Many of the buyers are Europeans. According to Barker, Europeans like the Washington area (and selected other American urban centers, many in the Sun Belt), because they see the U.S. as politically stable and a safe haven for their pounds, francs and marks. Also, they see land prices as good, compared with those in Europe.
The buyer include not only Europeans but Candians. Costain Washington Inc. and C.F. Properties Inc., which last week won rezoning for masssive development of 334 acres of the Chiles tract at the Beltway and Rte. 50 three miles south of Tysons Corner, are both Canadian-controlled and financed.
But it is not only foreign investors who are zeroing in one the Washington area. Mortimer B. Zuckerman, who lost the bidding contest for Tysons Ii, is headquartered in Boston. He has done major projects there and in Philadelphia, Los Angeles, San Francisco and Washington (Capital Gallery in Southeast), and is planning projects in suburban Maryland and the Springfield area of Fairfax. Rose Associates, which plans a billion dollars' worth of development at Pentagon City in Arlington, is in New York.
High interest rates do not necessarily mean money is unavailable to finance major projects. "The money is there for the developers with strong track records," says Merrill A. Yavinsky, senior vice president of Walker & Dunlop. "We're not talking about the guy starting his first building."
While interest rates are near record highs, large successful developers like Lerner often area able to get cheaper loans from insurance companies and other lenders, such as pension funds, by giving them a piece of the action in the form of equity participation or future profits.
While the suburban office-space market showed signs of softening in 1980, some real estate observers think rocketing prices downtown (from $16 a square foot in 1978 to $30 to $35 for 1982-1983 delivery) will give an extra measure of attractiveness to suburban space, which, at the best locations, is generally available for around $14 a square foot.
Yavinsky says: "There comes a point where a downtown location is not worth the price."