Apr. 3, 2011 - Crain's New York Business

Companies are purchasing office towers in the nation’s capital

Last month, Rockrose Development Corp. did what growing numbers of its New York peers are doing. It bought an office building in Washington, D.C.

In recent months, Tishman Speyer, The Rockefeller Group, TF Cornerstone and TIAA-CREF have all purchased office towers in the nation’s capital as companies seek to own a piece of a market that, like New York, is recovering much faster than the rest of the country.

“People want to diversify out of New York,” said Dan Fasulo, managing director of Real Capital Analytics. “And everyone is looking for stability.”

In that regard, few markets can compare with Washington.

“No matter whether the Democrats or Republicans are in power, the government just keeps growing and growing,” said Justin Elghanayan, vice president at Rockrose. “Plus, like New York, it is a space-constrained market.”

The $43 million purchase of 1150 18th St. N.W., a 180,000-square-foot building in the city’s central business district, is Rockrose’s first in the city since the three brothers who ran the business split 18 months ago. At that time, the two who left to form TF Cornerstone took the Washington portfolio with them.

Recent statistics underline Washington’s attractiveness. Last year, vacancy rates in the capital fell to 11.2%, from 12.5% at the end of 2009. That compares with an average vacancy rate for nation’s central business districts of 14.4% and a rate of 10.5% in Manhattan. Meanwhile, leasing activity in Washington surged 30% last year, according to Cushman & Wakefield Inc.

When it comes to how far real estate prices have come since the darkest days of the recession, however, Washington pales in comparison with New York. Here, prices are up 32.9% from their lows, while in Washington, the rise is 21%, according to Moody’s/Real Commercial Property Index.

By Theresa Agovino