What does Washington's building boom have to do with the retirement of a nurse in the Netherlands or insurance for a London shopkeeper?
If Washingtonians could look behind the scenes at the buildings nearing completion throughout the city, they would find out what real estate insiders already know: Dutch pension funds, British insurance companies and dozens of other foreign investors are buying up much of the city. In fact, they already may be your landlord.
Working quietly or even secretly, investors from all over the world are pouring millions of dollars into offices, shopping centers, hotels and condominiums from Alexandria to Annapolis. They are helping to fuel the building boom that has changed the face of downtown Washington, setting new standards for the cost and quality of prime office space in the process.
No one claims that foreign investors are taking over the market, but Washington brokers and consultants are hustling to cash in on the strong foreign interest in local projects, which does not seem to have slackened despite the recession and the current glut of office space. On the contrary, foreign investors are more bullish than ever about Washington.
Foreign real estate purchases--the largest category of foreign investment in the United States--dropped from $3.7 billion nationwide in 1981 to $2.3 billion in 1982, the Commerce Department reported.
There are no estimates of the amount of foreign investments in Washington area real estate, but international brokers believe that foreign investors are involved in between 10 and 30 percent of the commercial real estate acquisitions and developments here.
They say foreign investment in Washington properties has remained strong despite the decline in the national figures. Investors who deferred investments during the recession are back in the market, they add.
"Despite concern about the softer leasing market, there is a continued interest in properties here," said Graham Bond, of Richard Ellis Inc., a British real estate consulting firm that was founded in 1773 and that has been representing foreign clients in the United States since 1976. "There is a continued belief in long-term investment in the Washington market," Bond said.
"We haven't had a dropoff at all. We've been as busy as we can be," said John P. Kyle, a broker for Coldwell Banker, a commercial brokerage that opened an office in London this year. "Demand has remained exceptionally strong even throughout the recession."
Coldwell Banker is in the thick of the foreign real estate business, working with two of the biggest foreign investors on two projects that have broken local records for land sales price and project size.
The firm handled the sale of the 10,433-square-foot site of the Demonet Building at Connecticut Ave. and M St. to British interests for the equivalent of almost $1,000 a square foot, the highest price ever paid for downtown land. The new owner is Second British American Properties, an American company backed by financing from a major British insurance company. The property is being developed by The Viking Property Group Inc., a subsidiary of a British development firm.
The project typifies the British approach, which calls for first-class projects on prime sites in the so-called Golden Triangle, the area bounded by 16th, 21st and N streets and Pennsylvania Avenue. It involves renovation of the Demonet Building, former home of the Maison Demonet bakery and candy shop, and construction of a 12-story building for about 130,000 square feet of prime office space that will rent for between $30 and $35 a square foot.
On the other side of town, Coldwell Banker is leasing agent for a huge new office building being built by the American subsidiary of a Canadian firm that believes in taking risks that would make most British investors shudder.
The 750,000-square-foot building at 1300 New York Ave. will be the largest and grandest private office building in the city, according to Daon Corp., which is building the $160 million project in a joint venture with Prudential Insurance Co. of America.
"It's an investment in the future," said Daon Vice President Dan Liddiard, describing Daon's plan to lure major law firms and other large tenants from the boxes of the Golden Triangle to the up-and-coming, but still unproven, area east of 15th Street.
"We redefine the market, and if you're really going to redefine the boundaries of the market, you have to build something to draw the established market areas," Liddiard said.
Despite skepticism from other builders and brokers, Liddiard believes that the neoclassical building will be leased soon after completion next year on the strength of its quality and amenities, including the Grand Court, a central atrium with a fountain and private terraces on several floors. Another selling point is its proximity to the White House, Metro Center, the Convention Center and Pennsylvania Avenue redevelopment.
About two dozen other projects are being built or renovated east of 15th Street, and several major law firms have moved or are considering a move to the area, according to Coldwell Banker. When they are finished, the central business district will extend to Metro Center, and 1300 New York will be "the keystone" of the new east side, a Coldwell Banker spokesman said.
The Dutch are in the market in a big way, too. Trans Potomac Plaza, a recently completed 304,000-square-foot complex on the bank of the Potomac River in Alexandria, was developed by Savage/Fogarty Companies Inc., an Alexandria-based firm owned partly by Dutch investors.
Savage/Fogarty developed the $45 million project in conjunction with Bryce Mountain Inc., an American company owned by PGGM, a private pension trust for nurses and other health care professionals in the Netherlands.
But these buildings are only a few of the more obvious examples of the foreign role in Washington real estate. Foreign investors have been in the market since the mid-1970s and have held interests for years in such well known projects as L'Enfant Plaza, the Watergate and Mazza Gallerie.
When foreign ownership of U.S. land first came under public scrutiny in the late 1970s, there were widespread fears that oil-rich Arab nations would buy up the nation's land and buildings. The Arabs looked, but it doesn't appear that they bought much property here. One broker said he was "summoned" to Saudi Arabia to discuss possible acquisitions but never closed on a sale.
The most active investors appear to be the British, according to an informal survey of international brokers and Commerce Department data on foreign real estate purchases. But other foreign investors are close behind, including Canadians, Dutch and West Germans. Money also is flowing into the city at a slightly slower pace from Ireland, France, South Africa and even Japan.
Foreign investors include pension funds, insurance companies, wealthy individuals, partnerships and investment funds in which dozens of companies pool their funds. In general, investors prefer existing office buildings, but they are turning increasingly to development and renovation, partly because existing properties are getting harder to find.
Prudential Assurance Co. of the United Kingdom owns the Board of Trade Building at 1129 20th St. NW. The Walker Building at 734 15th St. NW was purchased for $10.5 million in 1981 by American Property Trust, a comingled fund consisting of 49 major British pension funds, including the British railroad, steel and electric industries.
Wimpey Property Holdings, one of the largest construction firms in Europe, is putting up a 108,000-square-foot office building at 1020 19th St. NW. in a joint venture with two British pension funds. A British developer also is planning a new building on the site of the current Army Navy Club on I Street at Farragut Square for sale to an institutional investor.
Canadian developers have been operating in U.S. markets since the 1970s, often in joint ventures with American partners such as Prudential. After waiting for the right time to build here, they are coming on strong.
Cadillac Fairview Urban Development, a subsidiary of a Toronto development firm, hopes to break ground this year for Lincoln Square, an 800,000-square-foot office complex to be built in two phases at 1001 Pennsylvania Ave. NW.
The firm also will develop an office park on a 130-acre site at the intersection of the Beltway and Route 50 in Fairfax County. Cadillac Fairview will build or sell land for a total of 3.5 million to 4 million square feet of office space when the project is completed.
Other Canadian purchases or developments include the Investment Building at 1511 K St. NW, a 240,000-square-foot office building planned for 19th and M St. NW, and a residential development in Columbia, Md.
The Dutch seems to like Northern Virginia. An American subsidiary of the pension fund for the Dutch airline KLM owns the Rutherford B. Hayes Building in Crystal City, and a Dutch partnership owns the Magazine Building in Rosslyn, according to Savage/Fogarty officials.
In addition to Trans Potomac Plaza, Savage/Fogarty has developed the Paralyzed Veterans of America Building at 801 18th St. NW. The firm expects to begin construction next year on Braddock Place, a 300,000-square-foot residential and office complex on a site near the Braddock Metro stop in Alexandria for sale to a Dutch pension fund.
A number of investors buying Washington real estate are based in the Netherlands Antilles, a Carribean Caribbean island that offers investors based there a break from U.S. taxation thanks to a favorable tax treaty.
Investors based there own all or part of Towson Plaza, the Solar Building at 16th and K Sts. NW and 2121 Wisconsin Ave.
West German investors first took interest in agricultural land in Virginia and Maryland, but now are looking at developed properties in the city and suburbs, according to C. Stevens Avery II, a consultant who represents West German clients. Avery said that, after a hiatus during the recession, his clients--mostly wealthy individuals--have purchased several downtown office buildings.
Western Development Corp. of Washington has worked with a West German partnership based in Munich on joint-venture projects that have included Market House in Georgetown and shopping centers in Suburban Maryland, according to Avery.
Indian investors also have come to town. They wanted hotels, and they found them. TAJ International Hotels, a subsidiary of an Indian industrial conglomerate, has purchased the Canterbury, the Hampshire, the Quality Inn Downtown and the Ramada Inn Central.
"The Indians and Pakistanis are buying Mom and Pop grocery stores along Route 1 from the Beltway to Fort Belvoir," said Bennett Clute, director of leasing for Long & Foster. "I don't think there are three motels left that are not Indian- or Pakistani-owned."
The Japanese might be the newest foreign players in the market. Aoki Construction Co. is working with a Baltimore firm on development of several hundred town houses in Columbia, Germantown and Gaithersburg.
Other Washington projects owned partly or entirely by foreign investors include:
* Montgomery Mall, The Irish Life Assurance Co.
* 1010 Vermont Ave., a French bank known as Paribas.
* The Dutch Glenn and Glendale Apartments in Annapolis, Trafalgar Investments of South Africa.
NEXT WEEK: What attracts foreigners