Why is the tallest building in the region sitting empty?
Work has been substantially completed on 1812 North Moore, a 390-foot office tower in Rosslyn. It is the second tallest building in the entire region, second only to the Washington Monument, three times the height of most office buildings in the District.
The building’s panoramic views of downtown D.C. and the National Mall were featured on local television. It was designed to achieve the highest level of environmental sustainability set by the U.S. Green Building Council.
Of everything that has been built during the boom Washington has experienced after the recession, it has had the largest mark on the area’s skyline.
So why hasn’t any company signed a lease?
When Anthony Westreich, Monday Properties president and chief executive, made the bold decision to start the 580,000-square-foot project it was with the hope that the market would improve over the three years of construction.
Instead, it has gotten much worse. The vacancy rate for Northern Virginia areas inside the Beltway was 10 percent in 2010; it’s at 17.5 percent this quarter. Crystal City is already saddled with relatively high vacancies and Ballston, with both the National Science Foundation and the Fish & Wildlife Service both departing, is poised to join it. Since Westreich gathered with government officials to celebrate the groundbreaking three years ago, they’ve provided him with sequestration, repeated fiscal cliff scares and a government shutdown.
Leasing experts say that with the exception of some activity in Tysons, very few deals are being signed and companies that are signing or extending leases are doing so for less space. Sometimes this is the result of cutting or freezing staff levels. Other times it is because open office layouts allow for less space per person.
“I don’t think it’s the fault of 1812 North Moore. I think people in this market gravitate to Class A property and that is certainly Class A,” said Cathy A. Delcoco, executive vice president at CBRE in Tysons Corner.
Delcoco has represented some of the region’s biggest corporations in their real estate searches, among them Northrop Grumman, Bechtel, Time Warner and Gannett. She said she thinks companies will commit to the building once the economy picks up.
“It has nothing to do with the location and the property itself. I think it’s more the abysmal activity in the market. The market is just really slow with activity.”
Matt Pacinelli, senior vice president of leasing for the development firm Penzance, offered three main reasons via e-mail for the emptiness: federal government cutbacks, low leasing levels overall and companies looking to reduce costs rather than move into more luxurious space.
“There currently isn’t strong interest in most buildings regardless of cost or quality,” at the moment, he said.
A bright spot for Monday and its partner, Goldman Sachs, Pacinelli said, is that few other companies were willing to pull the trigger on a new building when they were, which could give 1812 North Moore a leg up once companies are willing to make commitments again.
“There has been very little new supply brought online in this cycle,” Pacinelli said. “As a result, when we actually get a federal budget, the conventional wisdom is that the commercial real estate leasing market will roar back.”
Westreich knows Rosslyn real estate as well as anyone, as his father, Stanley, built 3 million square feet in Rosslyn. When Westreich was starting the project, he said he was doing so to break a “stalemate” between the capital markets and prospective tenants. This spring he and Monday’s partner, a Goldman Sachs fund, landed a $200 million construction loan from Pacific Life Insurance Co.
But government dysfunction hasn’t been the only difficulty in getting companies to lease the building. Westreich aimed at luring law firms across from the District despite the prestige of being downtown and rules governing the Virginia Bar. “I am of the belief that a law firm jumps the river,” Westreich said in 2010. To this point, it hasn’t happened.
Follow Jonathan O’Connell on Twitter: @oconnellpostbiz