DC Makes List of Most Attractive Cities for Foreign Investors

July 28, 2008
1 Comment

by Mark Wellborn

Downtown DC by Anthony Nigrelli

Forbes, a magazine famous for its rankings of power and luxury, recently came out with its list of the top U.S. markets for international real estate investors. In somewhat of a surprise, DC came in second behind New York City.

The author, Matt Woolsey, said that the list was compiled based on how enticing a city’s real estate market is for international investment. DC’s high ranking was based largely on the metro area’s robust office and commercial sector.

“It is not the biggest market in the world, but DC is special because the government never stops spending money, regardless of what is going on in the national economy,” Woolsey told UrbanTurf. “The government is not going out of business anytime soon and that makes the commercial sector pretty valuable.”

Washington has historically been considered a recession-proof market because the government constantly needs funding and always seems to be expanding. However, the early 1990s proved to be the exception.

During those years, the federal government ratcheted back its overall spending rather significantly. The reduction had a debilitating effect on the area’s real estate market, and for the first time in the city’s history, there was major retrenchment in the commercial real estate community.

“The real estate business truly experienced a depression,” Buzz Smith of Blue Ridge Advisors said recently. “There were declines that were as drastic as anything that happened in the early 1930s.”

Smith, a 20-year veteran of the commercial real estate business, noted that the current climate is very different from that period in the 1990s, and there is no indication that the government will experience a scenario like that in the near future.

“I would share the opinion that DC has as stable an economy as anywhere in the country,” Smith said. “It is really a one-company town, and between the growth of the government and the wide component of groups that support it, things will remain strong.”

A resilient commercial sector does not necessarily give rise to an attractive residential market. However, the combination of a weak dollar and low property prices has led many foreign investors to take a look in DC, according to Keller Williams’ Dana Scanlon.

“With the exchange rate what it is, I have seen a lot of venture and partnership activity from international companies,” Scanlon said. “And the employees that companies are relocating to launch these new ventures are seeing more sense in buying than renting.”

Late last year, Scanlon surmised that foreign buyers were going to be playing a major buying role in the DC real estate market in the coming year. She wrote a presentation in French about the state of the market and presented it in the early part of the year. The phone started ringing with prospective buyers, and has not stopped.

“My international client base is largely French and French-Canadian clients,” Scanlon said. “There are a number of young people, who are already working over here, looking to buy for themselves and their families.”

Scanlon advises her international buyers that, while the area may suffer temporarily, DC is a stable market that will be a good investment in the long run. Matt Woolsey seconded this notion.

“If you listed out the top ten median income counties in the US, I think six are in the DC metro area,” he told UrbanTurf. “For that reason, it is a rare place of stability. You can pretty much guarantee that places like New York and DC will still be good investments ten years from now.”

1 Comment

James Brennan said at 8:02 pm on Thursday July 16, 2009:
Mark,

Great current observation. I have seen many foreogn investors seek out triple net lease assets such as an office building with a GSA tenant. These stabilized assets allow for predictable cashflow with a credit tenant, and entree into the DC market. It also spurs a sale, often a 1031 exchange, from a private client investor. I write more about current trends on my blog: http://www.inside1031.com. Best regards! james