Carr Properties, fresh off a $330 million cash infusion from Israeli investors, is acquiring or developing nearly 850,000 square feet of office space in Arlington’s Rosslyn-Ballston corridor, even as leasing remains flat and contractors continue to cut back.
At the end of August, Oliver T. Carr III, president and chief executive of Carr Properties, finalized a deal with Alony Hetz, one of Israel’s largest real-estate investment holding companies, to grow Carr’s portfolio — all of it in the Washington area — to $1.5 billion from $800 million.
Carr recently disclosed a trio of deals along Wilson Boulevard in Arlington within short walks of the Court House or Ballston Metro stations. In Court House, Carr won zoning approval for a 180,000-square-foot office building, 2311 Wilson Blvd., where there are currently a string of two-level retail buildings. Construction could start a year from now.
Carr said he plans to propose a building of about the same size at 2038 Wilson Blvd., currently home to a Wendy’s, about six months after the first. Terry Holzheimer, director of Arlington’s Department of Economic Development, said he had not received plans for the project, but that the county was looking to add more office space. “It’s a project that fits well into our plans,” he said.
Down the street in Ballston, Carr is acquiring a 49.9 percent stake in two office buildings that were completed in recent years, the Liberty Center plaza, at 875 N. Randolph St. and 4075 Wilson Blvd.
With the deals, Carr, son of Washington real estate magnate Oliver T. Carr Jr., is using his family’s robust balance sheet, name and connections to build at a time when other developers are sitting on the sidelines.
At a recent event held by the Greater Washington Commercial Association of Realtors, Carr said efficient, sharp-looking glass office buildings in close-in neighborhoods such as the Rosslyn-Ballston corridor will draw a premium. Because few other builders are willing to begin projects at the moment, his may be among the only new buildings when they are completed.
“We are finding a lot of times that existing buildings in places where we want to be are much more expensive, which is why we’ve been choosing to do development,” Carr said at the event.
There is not a lot of reason for short-term optimism in the Washington office market. Researchers put the vacancy rate for Northern Virginia at between 16 and 18 percent at the end of the third quarter, and found few opportunities for growth, particularly given sequestration and the ongoing state of gridlock in the federal government. Ballston’s vacancy could rise dramatically when it loses both the National Science Foundation and the Fish & Wildlife Service. Developers of 1812 N. Moore, a 390-foot tower, have nearly completed the project but not announced any tenants.
“Uncertainty has planted firm roots in the regional commercial real estate market, and the looming prospect of a government shutdown isn’t helping,” said Jeff Kottmeier, a researcher at CBRE.
But Carr had success leasing 1700 New York Ave. NW, offices next to the Corcoran Gallery of Art, and has already decided to build a 220,000-square-foot office building in Bethesda, 4500 East West Highway, without any tenants lined up.
He said tenants are willing to pay a premium for buildings that have efficient floor plans, glass curtain walls, supreme environmental performance and amenities such as roof decks and gyms. He also said he recently put his 110-person team through the Ritz-Carlton service training program.
“If you think about what is going on with the market, while you do have double-digit vacancy rates, our expectation is that for a 2015 delivery or a 2016 delivery, there will be a lack of new product,” said Spencer R. Stouffer, a broker at Cassidy Turley who is leasing 2311 Wilson Blvd.
“While we’re mindful that there is a lot of re-let space, that is not necessarily the space that people want to lease,” Stouffer said.