Commercial real estate executives say Richmond is well positioned for investment and growth
- October 20, 2010
Second-tier markets like Richmond have reason to be optimistic as the commercial real estate market recovers from the recession. That was one of the takeaways from a panel of real estate executives who spoke Tuesday night at a forum sponsored by the Greater Richmond Association for Commercial Real Estate (GRACRE).
The event, held at the Country Club of Virginia, drew nearly 300 people who wanted to hear the CEOs and COOs of four major mid-Atlantic real estate investment trusts (REITs) –First Potomac Realty Trust, Liberty Property Trust, Highwoods Properties and Brandywine Realty Trust—weigh in on the Richmond market. The executives also talked about what it would take for commercial real estate to rebound from a lackluster 2008 and 2009.
REITs are major players in the greater Richmond market. According to GRACRE, they own or manage more than more than 65 percent of Class A and B investor-owned space in the suburban office market.
Edward J. Fritsch, president and CEO for Raleigh-based Highwoods, indicated that market share will grow in the future as REITs eye where to invest their money. While most investment capital is currently going to trophy properties in cities like Washington, D.C., and New York, he predicts a change in that trend soon. “I will make a bit of a prediction: the volume of properties going up for sale in second-tier marketplaces like Richmond and Nashville, there’s going to be a dramatic increase in that over the next 12 to 24 months.” Altogether, he said, Highwoods has a $325 million investment in the Richmond market. “We hope to invest more here in the future.”
James H. “Skip” Dawson, COO for Bethesda, Md.-based First Potomac Realty Trust, said he didn’t see his company investing a lot of money in central Virginia in the near future. However, the REIT is glad to be here and considers the market a long-term hold. First Potomac owns a 1.7 million square-foot portfolio here, he said, or about 16 percent of the REIT’s overall portfolio, and it generates 10 percent of the company’s revenue. “It’s a market that has done well for us,” Dawson said. “You don’t have the peaks and valleys that we experience in some of our other markets.”
The executives credited Virginia’s and Richmond’s pro-business climate as a driver for both tenants and corporate relocations. They also said real estate investors continue to feel uncertain about the economy and will be looking for direction after the November elections. “All of us are fairly well capitalized and we want to grow our companies,” said Gerald H. Sweeney, president and CEO of Brandywine Realty Trust, based in Radnor, Pa. “But right now there’s a lack of clarity on demand.”
Picking up on that theme, Fritsch noted, “It’s Oct.19, and the guy leasing space from us doesn’t know what his tax rate is going to be, so how can he make a decision on hiring?”
“We need leadership from Washington,” agreed Robert E. Fenza, COO for Malvern, Pa.-based Liberty Property Trust. “I don’t care which side of the aisle it comes from. It’s disheartening when our children graduate from college and they can’t find a job—when they don’t have hope that they’re going to find a job as good as Mom and Dad’s.”
Going forward, the REIT executives said sustainable building will be the “new norm” While some tenants don’t want to pay extra for green building perks now, government mandates for sustainable construction will help set the benchmark for the private sector. “People won’t pay for it now, but at some time in the future, people won’t pay to be in a place that doesn’t have it,” said Sweeney.
High speed rail and cooperation by local governments also will help draw investment, they said. Henrico County’s recent approval of a new land-use plan for Innsbrook Corporate Center, granting higher densities for a mixed-use village, was cited by Fritsch as an example of the good that can come from public/private partnerships.
In 2011 and 2012, the REIT executives said they plan to expand primarily in markets where they already have a footprint. There’s more risk to invest in a new market, unless the REIT can pick up a premiere partner or project.
In closing, Sweeney said, “It’s been a very tough couple of years for a lot of us in this room… Brighter days are ahead. Richmond is very well positioned to accelerate the pace of the recovery. All the right ingredients for this city to be successful are here.”