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Avison Young's Kevill: Urbanization Causes Rental Growth(Audio) · Bloomberg Intelligence

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  Speaker 1: advancing toward a deal after the company has made progress
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  Speaker 1: outlined the competitive landscape in that industry. What's been going
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  Speaker 1: on in the agricam world is the bigest companies have
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  Speaker 1: been merging. So last year we had Dowin DuPont come together,
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  Speaker 1: nine years, led by soaring demand in the South and
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  Speaker 1: adding to signs of persistent housing market strength. Commerce Department
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  Speaker 1: tens of thousands of homes and killed thirteen people. Donald
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  Speaker 1: paid about thirty five thousand dollars a month for rent
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  Speaker 1: and utilities until this April. The payment began increasing in
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  Speaker 1: May and hit one seventy thousand dollars last month. Hillary
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  Speaker 1: this is Bloomberg Charlie, and we thank you and again
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  Speaker 1: recapping the SMP five hundred index up six to nine,
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  Speaker 1: a gain of three tents of one percent. Navstack trading
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  Speaker 1: at a record of four tenths of one percent, downd
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  Speaker 1: US reels up two tenths of one percent. I'm Charlie
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  Speaker 1: Pellett and Pat's a Bloombred business flash. You're listening to
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  Speaker 1: taking stock with Kathleen pim Fox on Bloomberg Radio. Commercial
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  Speaker 1: real estate in our nation's capital. We've got an expert.
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  Speaker 1: John Kevil is Principal Managing direct or if US Capital
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  Speaker 1: Markets for Abison Young. He's based in Washington, d C. John,
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  Speaker 1: thank you very much for being with us. Thank you, Pam.
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  Speaker 1: Tell us a little bit about your company, about Avison Young,
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  Speaker 1: because you're based in Toronto, but you have lots of
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  Speaker 1: experience in the DC market. You've executed more than twenty
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  Speaker 1: five billion dollars worth of transactions over your nearly quarter
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  Speaker 1: century career. Well, Avison Young is Toronto based and in
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  Speaker 1: the US we're Chicago based, and then we're we're the
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  Speaker 1: largest the fastest growing real estate services firm in in
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  Speaker 1: the country. We've gone from four n people just four
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  Speaker 1: years ago to nearly three thousand people. And we've done
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  Speaker 1: that through requiring acquiring companies, acquiring and keep people, and
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  Speaker 1: really focusing on on high levels of client service and
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  Speaker 1: markets across the country. We're in seventy markets globally, including Canada, Mexico, Germany,
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  Speaker 1: the UK, and UH and we're continually growing. So tell
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  Speaker 1: all right, so tell us about some of that. I
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  Speaker 1: know you've broken uh seven real deals in Washington, d C.
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  Speaker 1: And UH, we'll tell us about two of them in particular.
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  Speaker 1: I know that those are regarded as some of the
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  Speaker 1: largest deals ever well in in Washington. I think the
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  Speaker 1: is an interesting market right now. UM, we're we're a
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  Speaker 1: little bit lower on the on the scale and the
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  Speaker 1: attractiveness scale for global investment than we typically have been.
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  Speaker 1: And that's that's Um, that's I think largely due to
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  Speaker 1: the fact that the federal government has not been in
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  Speaker 1: sort of a growth on mode over the last few years. Uh.
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  Speaker 1: That being said, what we've seen is not that not
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  Speaker 1: necessarily the largest deals, but some of the most interesting deals.
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  Speaker 1: I've been on our deals where are quite frankly, some
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  Speaker 1: of the smaller deals, some of the deals where we've
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  Speaker 1: seen the urbanization trends that we're seeing across the area
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  Speaker 1: take route and office investors are increasingly looking to live, work,
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  Speaker 1: play environments where where the firms that our tenants in
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  Speaker 1: the buildings UM, the buildings are close to where people live,
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  Speaker 1: where people play and UM, and those buildings become sort
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  Speaker 1: of more of a part of the fabric of the tendency.
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  Speaker 1: And and therefore the tenants are more more prone to
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  Speaker 1: staying there, and and and you see higher rental growth,
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  Speaker 1: and those tend to be the investments that people can
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  Speaker 1: make sense of a little bit better right now than
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  Speaker 1: than those that we rely on the pure sort of
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  Speaker 1: economic growth on the back of our traditional demand generators,
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  Speaker 1: which have been the government and law firms and contractors.
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  Speaker 1: Now we're just going to really point to one particular deal.
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  Speaker 1: This was the one inteen five five five twelfth Street
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  Speaker 1: Northwest that was a nearly five hundred million dollar deal
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  Speaker 1: going for six hundred and thirty five dollars a square foot.
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  Speaker 1: Can you tell us what does prime business commercial space
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  Speaker 1: rent for or sell for right now in Washington, d C? Well,
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  Speaker 1: right now that the best indicator of the prime space
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  Speaker 1: is not necessarily the price per square foot, but more
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  Speaker 1: to cap right that investors are willing to pay UM.
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  Speaker 1: I would say that for prime trophy rental in downtown
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  Speaker 1: d C right now, someone would buy that first, say
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  Speaker 1: a three three and a half percent cap rate, assuming
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  Speaker 1: that there's some some level of growth implied in the
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  Speaker 1: rent based on who the tendency is. UH, stabilized cap
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  Speaker 1: rates would be a little bit higher in that particular case.
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  Speaker 1: That was a deal that was a full city block
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  Speaker 1: in downtown d C. And that's the sort of investment
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  Speaker 1: that gets global attention, UH. And that was that was
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  Speaker 1: really the key there. The the global attention that that
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  Speaker 1: asset received in the market because of its size and
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  Speaker 1: because of its location in a gateway city almost transcends Washington,
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  Speaker 1: d C. And really is an indicator of how attractive
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  Speaker 1: it is to put major amounts of capital to work
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  Speaker 1: in in gateway cities across the US. And just to
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  Speaker 1: do the quick definition of cap rate, it's the ratio
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  Speaker 1: of net operating income to property asset value. Tell us
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  Speaker 1: a little bit about the expansion of infrastructure in Washington.
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  Speaker 1: I keep thinking, for example of the Metro, which is
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  Speaker 1: the second biggest UH public transport system in the US.
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  Speaker 1: For example, the the expansion of the Silver Line. How's
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  Speaker 1: that changing commercial real estate? Well, what you're seeing on
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  Speaker 1: the Silver Line in particular is is real estate investment
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  Speaker 1: is occurring around mass transportation around the country. And I
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  Speaker 1: think that's that's one of the that's one of the
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  Speaker 1: key drivers in this region. So investors from from outside
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  Speaker 1: the market and inside the market are focusing on where
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  Speaker 1: people want to live, where people can office, and where
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  Speaker 1: people can get around the region without cars, and and
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  Speaker 1: so that's leading to dense development around metro's and that's
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  Speaker 1: where we that's where investors for sea run growth and
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  Speaker 1: so that makes that that that that makes those investments
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  Speaker 1: more attractive. And I think you're seeing more and more
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  Speaker 1: capital um wanting to pay up to be around Silver
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  Speaker 1: Line metros. And you see it through Tyson's Corner, you
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  Speaker 1: see it out, and you see it out and resting
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  Speaker 1: in Herndon, and certainly you've seen it for a long
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  Speaker 1: time the Rose and Boston Quarter locally. Just last point
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  Speaker 1: to make the distinction for us between rental growth and
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  Speaker 1: asset types, because that's not necessarily what you think of
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  Speaker 1: when you think institutional assets, is it um I'm not
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  Speaker 1: social leading to rental growth, business trends leading to rental growth,
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  Speaker 1: and asset types that are not typically thought of as
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  Speaker 1: true institutional assets. Right, So I think, what what? What?
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  Speaker 1: What people have looked at? And you need to find
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  Speaker 1: cap rate a little while ago, and I think what
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  Speaker 1: what Many institutional investors have come to the conclusion that
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  Speaker 1: for the most part, pure cap rate compression has has stabilized,
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  Speaker 1: and they're going to get there. They're going to get
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  Speaker 1: their investment growth based on uh demographic increase, in demographic
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  Speaker 1: growth and the urbanization trends, and that's where where their
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  Speaker 1: urbanization is occurring. That's where you're gonna see rental growth.
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  Speaker 1: And I think that's where I leave it there. John Kevil, Principle,
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  Speaker 1: Managing director US capital Markets for Avaston Young. This is
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