Foreign Investors Like the Height Limit Too
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.