Housing Complex

Foreign Investors Like the Height Limit Too

Downtown from the Old Post Office.

Despite my advocacy for lifting the height limit in circumscribed locations in Washington, I'm very, very aware that lots of people like things how they are: Only as tall as the width of the street allows (if that). People talk about the "horizontal profile" of the city, the lovely light and air, the "human scale." Whatever floats your boat.

But there's another group of people that really likes the fact that buildings must stay short: Out-of-towners with cash to burn. At a Bisnow event this morning on the subject, Georgetown University professor Julian Josephs dated the origin of foreign interest in D.C. real estate to the 1910 institution of height limits. "That was what created Washington as a market of choice for international investors," he said. "We are the only market that really has that huge restraint on new buildings."

Why's that? Simple: When you buy an asset, you want to know that the same kind of asset isn't suddenly going to mushroom up all around you. That's true of domestic investors as well, but foreigners aren't taking chances on the urban fringe; they want central, trophy office space (like what the Qataris bought in CityCenterDC). D.C.'s got more space to fill up, but not downtown, so a building's sure to hold its value—unlike, say, Atlanta, which is awash in vacant office space at the moment.  "When a foreign investor comes to Washington, they know the market can't get taken away," Josephs explained. "They know that the competition can be restrained. Not everyone can break in."

Foreign interest in D.C. real estate is somewhat anemic, panelists said. D.C. slipped from number two to number three this year on the Association of Foreign Investors in Real Estate's list of top cities for foreign investment. Japanese companies bought the Homer Building recently, but AFIRE's Jim Fetgatter said their CEOs told him their countrymen weren't really keen on buying more.

At the end of the panel, the moderator asked a key question: Is real estate getting simply too expensive to buy in D.C.? Sales, of course, are good for the city, since taxes on real estate transactions make up several hundred million dollars every year (15 percent of which subsidizes affordable housing). High real estate values are also good—property taxes are expected to generate $1.2 billion in revenue in fiscal year 2012. But as real estate values creep ever skyward, lots of buyers lose interest. Debra Lacy, who represents foreign investors, recently bought a building in Chicago because she couldn't find anything in D.C. with a high enough yield to be worth the price. "We've had to look elsewhere, not necessarily by choice," she said.

So, height limits: Great for those who can afford them.

  • JM

    Aside from your strange dismissal of "light and air" (you really don't like light and air??), I'm not clear on your argument. You say foreign investors like DC because of the height limit, and then turn around and state that foreign interest in DC is "somewhat anemic" - because of the height limit putting upward pressure on prices. Which is it?

  • http://tsarchitect.nsflanagan.net цarьchitect

    "Light and Air" was the buzzword that brought about New York's 1916 zoning ordinance. You're right, who doesn't like light and air. But you need to talk about how much light and air a city needs and how those needs are balanced against the other factors that affect QoL.

    So, if I'm reading this correctly, the height limit benefits conservative and established property interests, but it's reaching a point where the cost of the property is outweighing the low risk of making the investment at all.

  • http://blogs.forbes.com/stephensmith/ Stephen Smith

    I'm gonna call bullshit on this:

    But there's another group of people that really likes the fact that buildings must stay short: Out-of-towners with cash to burn. At a Bisnow event this morning on the subject, Georgetown University professor Julian Josephs dated the origin of foreign interest in D.C. real estate to the 1910 institution of height limits. "That was what created Washington as a market of choice for international investors," he said. "We are the only market that really has that huge restraint on new buildings."

    Back in the day, DC wasn't the only city with a height limit – pretty much every big city in America had them, at least in certain neighborhoods. And anyway, what evidence is there that DC was a bigger market for foreign investors in the early 20th century than other cities? It was a provincial little backwater…what foreign investment was there? Was it really more than in New York, Chicago, Boston, St. Louis, Philadelphia, Baltimore, etc.?

    And if investors love height limits so much, how come New York City is the largest destination for foreign money?

  • MrJC

    There needs to be a height gradient - the further from the city center, the higher the building can be built. It will keep the feel of central DC - for the tourists, international investors, the elected folks, etc. while allowing much needed density (increasing tax revenues, decreasing transportation costs, etc.) on the outer fringes for the rest of us. From an urban design standpoint, it also allows for greater views of the city from the higher building built around a lower center-city – a very unique situation, and potentially very valuable. From a security standpoint, the secret service likes the building just the way they are – they own the roof access within a certain area of downtown dc, and taller building would mean a lost height advantage for surveillance and security.

  • http://alexblock.net Alex B.

    There needs to be a height gradient - the further from the city center, the higher the building can be built.

    Despite the fact that this is the opposite of how things are right now - where the tallest buildings are downtown?

    I'll just note you can increase the height limit in DC without fundamentally changing the flat nature of DC's skyline. The limit is now effectively 12 stories. What if it were 20? We're not talking about dropping the Empire State Building in here.

  • tom veil

    I would love it if DC had a 12-story limit. But as you and many of the commenters here surely know from reading the zoning code, the real limit is much shorter. In most neighborhoods, even urban ones like Shaw and Capitol Hill, zoning limits the building heights to 3 stories.

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