Anvil could fall on Maryland office market if Congress jumps off ‘fiscal cliff’ -- Gazette.Net


This story was updated on Nov. 16, 2012.

There is no way to avoid the Road Runner/Wile E. Coyote metaphors when considering what would happen to Maryland’s office market if Congress allows the federal budget to tumble off the “fiscal cliff” in January.

Already treading in mid-air due to the Great Recession and its subsequent stall in leasing activity by federal agencies and contractors, commercial property owners could feel the anvil fall, with the state losing as many as 113,700 jobs by 2014, according to the annual spending affordability report released last month by the Maryland Department of Legislative Services. That’s the worst-case scenario, should lawmakers and President Barack Obama prove unable to cut a deal to stop the automatic spending cuts and tax increases that would take effect nationwide starting Jan. 2.

The report said federal aid to the state could fall by about $117.6 million for fiscal year 2013, and state income and sales tax revenues could drop by as much as $635 million in fiscal 2014.

How that would play out in space requirements for the office, industrial and retail real estate sectors is unknown. But if the office market had to absorb even 5 percent of the lost jobs, that could create as much as 1.2 million square feet of new vacant space, assuming the General Services Administration benchmark of 218 rentable square feet of space per employee.

The prospect of Congress and Obama chasing each other to the bottom has made pundits out of real estate economists, some of whom are setting odds for various scenarios.

Jones Lang Lasalle presented a compelling graphic in a report right after last week’s election, suggesting how uncertainty about the federal budget has frozen hiring plans nationwide.

The data show that the nation added an average of 239,000 jobs per month in February through April last year, the months leading up to the showdown over raising the debt ceiling. “As the debate raged,” the maximum monthly new jobs total fell to 85,000, the report said. Once the debt ceiling was raised, job growth bounced back to 202,000 in September.

Cassidy Turley chief economist Kevin Thorpe, for example, estimates there is a 50 percent chance of a deal to avert the spending cuts and tax increases, which he said would stimulate creation of 2 million net new jobs next year. That would translate into 56 million square feet of office space absorption nationwide and a 70 basis point cut in vacancy rates.

But if the worst happens and the federal budget does fall off the cliff, Thorpe forecasts that office space absorption would fall by 2.6 million square feet nationwide next year and vacancies would rise by 20 basis points.

Two Cecil industrial buildings sell for $78.5M

A Dallas joint venture announced it bought a pair of Cecil County industrial buildings totaling 1.8 million square feet.

The two properties sold for a combined $78.5 million, according to CoStar Group, a real estate information service.

Hillwood Investment Properties, a Perot company, together with Brookfield Asset Management, bought the two Class A facilities, giving them access to mid-Atlantic markets from Baltimore to Philadelphia.

Built in 2005, the 756,690-square-foot building at 451 Fletchwood Road in Elkton is on 71 acres in Broadlands Business Park. The building at 238 Belvidere Road in Perryville was developed in 2003 and totals 1 million square feet on 71 acres.

The Perryville location has active rail access served by CSX Railway.

“Given the Class A nature of the buildings and high credit quality of the tenants, these properties are a great addition to the Hillwood-Brookfield portfolio,” Tom Fishman, Hillwood’s executive vice president of acquisitions, said in a news release.

The properties are within Baltimore’s I-95 North corridor industrial submarket, which consists of Hartford and Cecil counties.

Jones Lang LaSalle closes $62M in bridge loans

Jones Lang LaSalle Capital Markets announced that it has closed on $62 million in bridge loans for building in Bethesda and Baltimore.

Since July, it has closed on a total of almost $141 million in bridge financings, including three in Northern Virginia.

The transactions include a $44 million bridge/acquisition loan for Executive Plaza in Bethesda and an $18 million bridge refinancing for an office and industrial portfolio in Baltimore.

“A slowdown in the leasing activity due to a lack of clarity on the upcoming election and sequestration issues in the D.C. region have hampered efforts for borrowers to secure financing for a number of value-add, well-located opportunities,” said Jones Lang LaSalle’s Mike Yavinsky. “However, we are seeing a number of debt funds, banks and life companies looking for yield, step into this space to provide viable loans to bridge the gap.”

College Park medical building has new owner

The Premier Cos. acquired the Science Park Professional Center, a 45,059-square-foot medical office building at 6201 Greenbelt Road in College Park, according to state records.

No information on the price was available.

Broker Avison Young marketed the property as a potential condominium conversion. The building was 73 percent leased to anchor Children’s National Medical Center and 23 other tenants.

The building is assessed at $4.7 million and last traded for $1.6 million in 1997.

The property is within five miles of Doctors Community Hospital in Lanham and within 10 miles of Holy Cross Hospital in Silver Spring.

Ground broken on new Bethesda building

Carr Properties and Transwestern broke ground Thursday on the first new office building started in downtown Bethesda in more than 11 years.

The 223,000-square-foot property at 4500 East West Highway will replace a McDonald’s and a home converted to office space. The project was originally approved by the Montgomery County Planning Board in 2008.

Plans by developers include more than 13,000 square feet of street-level retail, below-grade parking, a fully equipped fitness facility, a conference center and a 4,500-square-foot rooftop terrace. It is scheduled for delivery in the summer of 2014.

Although this is the first new ground-up construction in downtown Bethesda in more than a decade, Akridge is putting the finishing touches on 120,000 square feet at 7550 Wisconsin Ave., a 1960s building it bought from the GSA in 2010 and rebuilt from bottom to top. A few blocks away, another whole-building renovation at 7700 Old Georgetown Road delivered 157,000 square feet during the first quarter of 2012.

Commercial real estate news items may be mailed to Robert Rand, The Business Gazette, 9030 Comprint Court, Gaithersburg, Md. 20877; emailed to; or faxed to 301-670-7183.