The Germans are out and New Yorkers and Australians are in, at least when it comes to buying commercial real estate in the Washington area.

German purchases of local real estate so far this year total less than $200 million, compared with more than $600 million in 2003, when their buying peaked, according to statistics produced by Cushman & Wakefield Inc., a commercial real estate services firm.

Over the past two years, German investors have gone from being among the most active buyers to being frequent sellers. They have reduced their holdings in the area by more than $200 million.

"They're buying less and selling more," said Sigrid G. Zialcita, an assistant director of research at Cushman & Wakefield.

Germans are being replaced by New York investors, who increased their holdings by $852 million over the past two years, according to Cushman & Wakefield, putting them in first place as net buyers. Next comes Australia, a $669 million increase in holdings, followed by Britain with $46 million and South Korea with $13 million.

Why are Germans pulling back and buying less in the Washington area? They are finding that U.S. pension funds and other foreign buyers, flush with cash, are willing to pay higher prices than they are for office buildings. That has left them facing more competition and winning fewer deals.

"The Germans are still around, and they're still making offers, but they're not making as many deals," said Benjamin B. Lacy, a District-based real estate adviser to Blue Capital, a major German mutual fund that buys office buildings in the United States. "They're not willing to pay high enough prices to get the property."

Others are. "Germans have always wanted a higher return than most other people, but it's good enough for the Australians, and it's good enough for U.S. pension funds," said Marc C. DeLuca, a senior vice president at ING Clarion Partners in the District, which recently bought two office buildings in the Washington area on behalf of Australian investors. DeLuca said Australians are out shopping for buildings because of changes in their laws providing more flexibility to use individual retirement accounts to buy real estate.

"They have so much money to invest, and there's only so much real estate they can buy in Australia," DeLuca said. "They're looking here. They're looking in Canada and in Europe."

At the same time, New York investors are selling large apartment buildings in the Big Apple and using their profits to buy office buildings in the Washington area, brokers said.

"They've held on to these apartment buildings for a long time, and they've received a tremendous amount of money in selling them," said Martin J. "Chip" Ryan III, an executive director of the capital markets group at Cushman & Wakefield. "They've decided to diversify, and coming to D.C. gives them a different market."

To the surprise of many investors, the Japanese are starting to get back into the market and bid on properties after having left the area as major investors more than two decades ago. Other new investors to the scene have included a Korean industrial consortium, which recently bought 1660 L St. NW.

Executives at New York-based investor Broadway Real Estate Partners, which gets some of its money from overseas pension funds, has spent about $300 million buying buildings in the Washington area in the past three years. Brian Zilla, director of eastern U.S. acquisitions at Broadway Real Estate, said the demand for office buildings in this area pushes up prices, as investors are able to borrow money at low interest rates.

But Zilla said he foresees "that window is going to be closing fairly shortly" as rates rise.

As for the departing Germans, Lacy said that his client, Blue Capital, is "eager to invest in D.C." because it has long been considered a stable market but that the returns are too low for investors "used to getting 7 to 8 percent annual returns on American real estate."

"It's like going to buy clothes at retail versus going and getting a discount," he said. "Our clients can't deliver the returns they need at these high prices."

The average price per square foot for an office building in a downtown area is $446 in the District, compared with $436 for New York, according to Cushman & Wakefield figures. In San Francisco, office space goes for $314 per foot; Boston is at $301 and Chicago is at $204 per foot.

Lacy's solution has been to look for partnerships such as one he just helped put together: Blue Capital bought a majority interest in six office buildings in Maryland owned by JBG Cos., a Chevy Chase developer. "We're getting a better return than if we had just tried to buy the real estate outright," Lacy said.

Other German investors are waiting for prices to cool and returns to go up.

"It's such a good time to be an owner or a seller, but it's a terrible time to be a buyer," said Stephen J. Zoukis, a partner at Jamestown Properties of Atlanta, which invests in U.S. real estate for Germans. His company owns a building in Fairfax that it bought two years ago. "We've now made the decision to sit on the sidelines" for a while.

Stalled Swap

There has been talk of building the District's largest hotel, with more than 1,000 rooms, next to the new convention center at Mount Vernon Square NW for at least five years. Active negotiations to acquire the land have gone on for much of the past year, but still there's no deal. And now the negotiations may be at a crossroads.

Kingdon Gould III, a District developer, owns about two acres at the corner of Ninth Street and Massachusetts Avenue NW where local tourism and D.C. officials have long said they want to build a hotel. The District has under contract land next to Gould's that is owned by a union. But without Gould's land, which is worth $50 million to $60 million, the District can't put the hotel there.

The D.C. government has offered to swap Gould his land at Ninth and Massachusetts for some land on the site of the old convention center, two blocks south. There are plans to turn that site into a major development with office, entertainment, retail and residential units.

But Gould isn't pleased with the deal. He wants the District to guarantee exactly what he'll be permitted to build on the land at the old convention center site.

"If the [District] will tell us what we can build and when, then we can give them an answer as to whether we will trade," Gould said last week. "Otherwise we have to have the trade conditional upon knowing that. We're not going to buy a pig in a poke."

The District, however, argues that Gould will have to work within the master plan being devised.

Some members of the Washington Convention Center Authority's board are expected to meet this week with key D.C. Council members, including Chairman Linda W. Cropp, Jack Evans and Sharon Ambrose, to lay out where they are in getting the hotel built and in their negotiations with Gould.

Dana Hedgpeth writes about commercial real estate and economic development. Her e-mail address is