Real Estate Prices Hit Boom Levels of '80S, Minus Fear of Fall

Article excerpt

A Tysons Corner office complex just sold for $250 a square foot and a nearby development site just hit $35 a square foot - Washington-area prices not seen outside the Beltway since the 1980s.

"We're just reaching the highs set 10 years ago," said Mary Petersen, senior vice president in charge of research for Cassidy & Pinkard, a D.C.-based brokerage.

These two deals may have reached the high-water mark set in the last real estate boom, but that doesn't mean the market is poised to repeat the ruinous fall that began in the late 1980s, real estate analysts said.

Fairfax Square, a three-building, 431,000-square-foot complex in the 8000 block of Leesburg Pike in Tysons Corner, sold for $108 million, or about $250 a square foot. UBS, a Swiss pension-fund adviser, bought it from New York-based Teachers Insurance.

A comparable sale occurred in 1988, when Chicago-based Heitman Properties paid $38 million, or about $242 a square foot, for 1430 Springhill Road, a 157,000-square-foot office building in Tysons Corner.

On the development side, McLean-based Koll Development paid $7.8 million, or $35 an FAR foot, for a site at 11111 Sunset Hills Road. "FAR," short for floor-to-area ratio, is a commonly used measure of how much development can be built on site - in this case, the site can support 218,000 square feet of development.

The last time a development site sold for about $35 an FAR foot was in 1988, when D.C.-based Intertech Corp. bought the site where Plaza America was built, Miss Petersen said.

Rising rents, the desirability of locations along the Dulles Toll Road and continuing demand in the face of new construction have pushed up land and building prices, said Kurt Stout, who is in charge of research for Grubb & Ellis of Metropolitan Washington D.C. Land prices in desired areas - the Toll Road, the Rosslyn-Ballston corridor and the Route 28 corridor - have about doubled since early 1996, he said.

The foundation for these prices is much stronger than a decade earlier, brokers said.

"Today's prices are based on much more realistic rents," Miss Petersen said.

Ten years ago, quoted or "face" rents stood at about $26 or $27 a square foot for top-flight or Class A space, but discounts or free-rent provisions could cut that by up to one-third, she said.

By contrast, Fairfax Square today rents in the range of $30 a square foot, but the generous discounts of the past are gone.

There are also lower vacancy rates, she noted. Where Tysons used to have a 15 percent vacancy rate about 10 years ago, now it stands at 4 percent or less, she said.

OUT OF COURT

Criimi Mae Inc. has agreed to suspend litigation against creditor Morgan Stanley & Co. in a tug-of-war over assets in the Rockville-based commercial mortgage company's bankruptcy.

The Wall Street brokerage and Criimi, which were fighting for control of two classes of commercial mortgage-backed securities, or CMBSes, have agreed instead to cooperate on selling these bonds, as they originally planned. They also agreed to negotiate on seven other classes of Criimi's bonds that were underwritten by Morgan Stanley, suspending litigation until at least March 31.

When the market for the bonds collapsed last fall, creditors raised collateral demands on Criimi, which filed for bankruptcy. The company plans to use the proceeds of the sale to help it emerge from bankruptcy.

The legal cease-fire signals how the market for these securities have recovered, according to industry officials. At least for Criimi, it has provided some much-sought breathing space.

"We are very pleased with this accord," said William B. Dockser, Criimi's chairman. "It represents the third such agreement we have reached in recent weeks and another important step toward our goal of emerging from bankruptcy court protection," he said in a written statement. …