Final - Development Potential Updated GJC Version
- 1. Washington D.C.’s Development Potential 202.798.7095 1710 Connecticut Avenue, NW Third Floor Washington, D.C. 20009 GreatJonesCap.com
- 2. 2 Washington D.C.’s Development Potential SUMMARY In the coming years, job growth is expected to fuel a continued expansion of Washington, D.C.’s population and housing market. The District’s Office of Planning estimates that if the population and economy grows at medium level through 2040, the District will add more than 230,000 jobs, requiring the addition of 81 million square feet of office and retail space and 119 million square feet of residential space. 1 Washington is expected to require 105,240 new residential units by 2032 compared to the 2012 inventory. 2 More than 60 percent of this increase will need to come from multi-‐family homes, according to the Center for Regional Analysis at George Mason University. 3 And if property tax revenue grows according to city projections, that would help produce hundreds of millions of dollars in new city revenue to invest in areas such as education, infrastructure and affordable housing by 2032. THE BOOM By nearly every economic and demographic indictor, Washington, D.C. has thrived in the 21st Century. Always a place of unparalleled social and cultural capital, the city’s economy has stood out in recent years and helped fuel a development boom. The number of livable and safe neighborhoods has been expanding rapidly, driven by an influx of young professionals. Here are the remarkable statistics: ! The District’s population has grown by more than 15 percent since 2000 – to about 659,000 in 2014. ! Home price sales in the Washington region increased by 169 percent from 1994 to 2014, the third largest increase of any major metropolitan region in the U.S. 4 ! Of all the nation’s major metropolitan regions, the Washington area’s median income is the highest – at about $90,000, surpassing the second tracked city, San Francisco, by more than $10,000. 5 ! 52 percent of D.C.’s residents who are at least 25 years old have a Bachelor’s degree, a higher mark than any of the 50 states. 6 7 Young professionals, who prefer renting to owning homes, statistics show, have fueled the population surge. 8 For the first time in 40 years, District voters between the ages of 25 and 34 outnumbered senior citizens in the 2014 election, the Washington Post reported. 9 No other large metro area has a greater share of residents in that age group (16 percent) than Washington, according to Delta Associates, a real estate consulting firm. 10 As a result of this growth, D.C.’s neighborhoods have transformed more than those of any other U.S. City except Portland, Oregon, according to Governing Magazine. The publication tallied neighborhoods that were relatively low-‐income in 2000 but had experienced relatively high growth in educational attainment and home values by 2013.
- 3. 3 Some have questioned whether D.C.’s transformation is complete, whether the city has reached capacity. The city’s leaders do not think so. D.C. Mayor Muriel Bowser was interviewed on MSNBC in July 2015. She said: In fact, the city’s growth is not expected to halt at 800,000. The Metropolitan Washington Council of Government projects it could reach nearly 900,000 by 2040. STEADY ECONOMIC GROWTH Even after federal spending cuts that began in 2013 and weaker job growth in 2013 and 2014, the region’s economy is still growing. The region added 68,500 jobs from June 2014 to June 2015, knocking down its unemployment rate by .5 percent. The jobless rate sits at 4.8 percent, lower than the national rate of 5.3 percent. 13 In its second quarter report, Delta Associates provided the following economic forecast for D.C.: “The employment picture in the Washington metro area is projected to improve over the next few years. Specifically, we expect the region to add about 36,000 jobs in 2015, 49,000 jobs in 2016, and peak at 58,000 jobs in 2017. This job growth will support healthy growth in the residential real estate industry, though not at levels experienced in prior expansion cycles.” 12 140 120 100 80 60 40 20 0 -20 -40 -60 District PAYROLL JOB GROWTH Washington Metro Area 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 THOUSANDSOFNEWPAYROLLJOBS (ANNUALAVERAGE) Sub. MD No. VA 20-Year Annual Average = 41,700/Year 5-Year Projected Average = 47,300/Year
- 4. 4 HOUSING MARKET DEMAND The housing market is thriving, in terms of sales volume and prices. In June, monthly sales reached 5,652, the highest level in nine years and an increase of 13 percent from a year ago, according to RealEstate Business Intelligence. 14 The Washington Post summed up the activity this way: “Buyers in the D.C. Metro region are snapping up homes at a pace not seen since the housing boom.” 15 Prices are up, too. The Median sales price reached $440,000 by 2013, jumping 33 percent from its low point in 2010. 16 Price growth has slowed since then but there is a good reason for that: slower job growth. D.C.’s housing market also recovered from the recession earlier than other metro areas, which are now surpassing the District in price growth, according to Delta Associates. 17 In other words, the D.C. market has shown itself to be resilient even in a less-‐than-‐ideal economy. In its second quarter housing market report, Delta Associates’ outlook for the region’s housing market was positive. “Despite the recent slight price depreciation,” the report said, “the regional housing market remains among the most stable in the nation, and anticipated job growth should drive a resurgent housing market.” 18 Demand for apartments in D.C. remains red hot. The market has been absorbing apartments at a record pace of more than 16,000 per year, well more than double the 10-‐year average. 19 JUNE MEDIAN SALES PRICE DC Metro Area 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $435k $440k $400k $359k $354k $380k $400k $440k $433k $439k SOURCE: http://www.washingtonpost.com/blogs/where-we-live/wp/2015/07/10/home-sales-in-d-c-region-reach-housing-boom-heights/
- 5. 5 UNITS NEEDED To meet all this demand, the District will need about 105,000 new residential units by 2032, according to the Center for Regional Analysis at George Mason University. 20 The city will have to issue about 4,000 more housing permits each year through 2032 than it did from 1990 to 2012. 21 Of the 105,000 new units, more than 67,000 will be multi-‐family homes, the vast majority for rent. The remaining 38,000 will be single-‐family homes, more than two-‐thirds of those will be owned, according to the Center for Regional Analysis at George Mason University. 22 The Center for Regional Analysis also provides an estimate of the economic makeup of these homes. Of the more the 47,000 new households coming by 2023, 37 percent will make at least 120 percent of the area’s median income. 23 Another 22 percent will make between 80 and 120 percent of the median income. The remaining 41 percent will be low-‐income, highlighting the ongoing challenge of building enough affordable housing in the District. Mayor Bowser campaigned on a platform to address that problem, and successfully pushed for a record $100 million commitment to the city’s affordable housing trust fund in her first budget. COMPARING UNIT TYPES: HOUSING NEED BY HOUSING TYPE Washington DC Metropolitan Area JURISDICTION District of Columbia Suburban Maryland Northern Virginia Washington DC Metro Area 105,240 160,815 279,004 548,298 27,023 84,288 162,079 275,268 11,552 7,502 13,519 32,643 55,677 46,665 67,911 171,032 10,989 22,360 35,496 69,356 344,624 203,674 TOTAL UNITS SINGLE-FAMILY RENTEROWNER RENTEROWNER MULTI-FAMILY SOURCE: http://cra.gmu.edu/pdfs/studies_reports_presentations/Housing_the_Regions_Future_Workforce_2012.pdf
- 6. 6 Meeting the aggregate demand for housing, if economic growth remains strong, will also be a challenge. The District is expected to run out of development space in less than 30 years, Washingtonian Magazine reported. 24 The Office of Planning estimates that, under current zoning laws, there is 190 million square feet of total commercial and residential capacity remaining in the city. Yet if the District grows at a breakneck pace, it will require 317 million square feet of new development space by 2040. 25 To address that need, the Office Planning has recommended making the Height Act, which limits the height of District buildings, more flexible to better meet the demands of residential and commercial growth. The magazine adds some solutions too: more common-‐sense zoning laws and more creative uses of existing land, and echoes the need to remove the strict building height cap. 26 Future real estate development is a big part of the creating shared prosperity in the city. In 2016, the city expects real property tax revenue to be about $2.3 billion, an annual increase of 6 percent. From 2017 to 2019, the city projects property tax revenue growth to slow to about 3.5 percent. If that same rate were to continue until 2032, the increases in property tax revenue would create about $604 million in new revenue for the city (in 2016 dollars). 27 Specifically, the increases in property tax revenue would generate $151 million for schools, $163 million for human resources and low-‐income programs, and $54.3 million for public works. 28 NEIGHBORHOODS TO INVEST IN There are also so many great residential investment opportunities all over the District, in many neighborhoods that have traditionally been overlooked by institutional investors. Evergreen Private Finance is active in many of these neighborhoods, including Fort Totten, Petworth and Brightwood Park. They are among the city’s fastest growing neighborhoods, are already well connected to the city’s infrastructure, have a strong sense of community, and share a close proximity to Downtown Washington. They also happen to be where some of the most shovel-‐ready development opportunities exist in the District. The Office of Planning analyzed parcels in D.C. to determine which have the most existing development capacity. It identified vacant or under-‐developed properties, and they were most concentrated Northeast Washington (in neighborhoods like Fort Totten). Fort Totten, NE The opportunity to be right near a national park, a Metro Station on both the Red, Green and Yellow Lines, and a bike trail, along with zoning that encourages mixed-‐use development, has made Fort Totten one of the most attractive places to buy or rent a home in the District. Investors are making out so well that Redfin named the neighborhood the sixth-‐best place to flip a home in the nation in 2013. 29 There is a great inventory of classic rowhouses both in Fort Totten and in Riggs Park, the leafy, quieter neighborhood to its north that experienced the highest growth in the value of its housing stock of any other neighborhood in D.C. in 2016: 16 percent. 30 Traditionally, residents in those rowhouses did not have much in the form of shopping or restaurants. That is no longer the case. Big developments keep cropping up in the area right around the Metro. This year came news that a 345-‐unit mixed-‐use residential development will replace a parking lot next to the Metro. Another developer announced it would build 37 luxury townhomes nearby. 31 32 H&R Retail is set to complete Art Place at Fort Totten, a major residential, retail and cultural space, by the end of 2016, according to leasing agent David Ward. The project is planned to hold 520 luxury apartments, about 90,000 square feet of retail, a children’s museum and other art space.
- 7. 7 Petworth, NW Petworth is at a more advanced stage of development than Fort Totten. Stocked with rowhouses and single-‐family homes with expansive porches, the area is full of hip cafes, restaurants and grocery stores. It’s right on the Green and Yellow Lines. A 155-‐unit luxury apartment building with ground-‐ floor retail lies on the same block as the Metro. But home prices are still booming. Petworth was the best neighborhood in the country to flip a home in 2013, with investors gaining an average of $312,400. 33 The numbers have kept going up, with the median sales price at $534,000 in the first quarter, a 23 percent increase from the year before. And the average sale price was 96 percent of the listed price. 34 Despite the changing demographics, neighborhood watchers say the area has maintained its diversity and strong sense of community. “The good parts about the neighborhood have stayed the same, and that probably contributes to why it’s so hot right now,” Petworth blogger Dan Silverman told the Washington Post. 35 Brightwood Park, NW Just up Georgia Avenue from Petworth is Brightwood Park. Similar with a great stock of old homes and its diversity, but different in that it’s a bit less accessible to the Metro and has fewer shops and cafes. That has begun to change, with more amenities popping up, and housing developments, too, like a modern 16-‐unit building set to come to the area, according to documents filed in July. 36 Jason Story, who opened a charcuterie shop there four years ago, told the Washington Post he has witnessed his store become a gathering place for neighborhood regulars. “We see a lot of young families, and a lot of highly educated people who know enough to move in where real estate is cheap,” he said. 37 The exact location of the neighborhood’s borders seems to confuse lots of people, and a larger neighborhood called Brightwood (with a Walmart and a Safeway), lies to its north. In Brightwood, the median home sale price increased by 13 percent in 2015 – to $450,000 – and the amount of time a listing stayed on the market dropped 36 percent to 53 days. 38 D.C.’s Development Potential Home prices and rents are projected to maintain their steady climb as record-‐setting demand continues in the market for D.C. apartments. There is vast development potential in the neighborhoods profiled in this paper. As Delta Associates reported, “Over the long term, the Washington metro area housing market has performed consistently better than other metro areas’ housing markets, and is among the most stable in the nation.” 39 What’s more, if the government adopts creative solutions to find more development space, in the long run the housing market would be able to grow even more. With the city’s current leadership seeking to accommodate continued population growth, there is good reason to think it will. The D.C. blog Urban Turf posed a question to David Versel, a former researcher at George Mason University’s Center for Regional Analysis, who now works for Delta Associates, about whether this high demand in the housing market can continue. Or, the blogger asked, will all these new projects go without renters and buyers? 40
- 8. 8 Versel saw three reasons for optimism: strong job growth expected through 2017, the continued demand for rentals due to flat wages and rising home prices, and the expectation that millennials will start forming households in the next five to ten years. REFERENCES 1. “Height Master Plan for the District of Columbia,” Office of Planning, November 20, 2013, Government of the District of Columbia, accessed at https://www.ncpc.gov/heightstudy/docs/District's%20Height%20Master%20Plan%20FINAL% 20Recommendations%20Report_Nov%2020%202013.pdf. 2. “Housing the Region’s Future Workforce: 2012-‐2032,” Lisa Sturtevant and Jeannette Chapman, Center for Regional Analysis at George Mason University School of Public Policy, December 2013, accessed at http://cra.gmu.edu/pdfs/studies_reports_ presentations/Housing_the_Regions_Future_Workforce_2012.pdf. 3. Ibid. 4. “First Quarter 2015 Washington Area Housing Outlook,” Delta Associates, 2015, accessed at https://www.deltaassociates .com/media/files/1429887544q1-‐2015-‐housing-‐outlook.pdf. 5. U.S. Census Bureau, “Household Income: 2013,” Amanda Noss, Washington, DC: American Community Survey, September 2013, accessed at https://www.census.gov/content/dam/Census/library/publications/2014/acs/acsbr13-‐02.pdf. 6. U.S. Census Bureau, “State and County QuickFacts,” May 28, 2015, accessed at http://quickfacts.census.gov/qfd/ states/11000.html. 7. U.S. Census Bureau, “Table 223: Educational Attainment by State: 1990 to 2009,” Washington, D.C.: Statistical Abstract of the United States, 2012, accessed at http://www.census.gov/compendia/statab/2012/tables/12s0233.pdf. 8. “2014 Washington/Baltimore Multifamily Market Overview,” Delta Associates, October 3, 2014, 18th Annual Washington/Baltimore Multifamily Market Overview & Awards for Excellence, Washington, D.C., accessed at https://www.deltaassociates.com/media/files/14123484152014apartmentmktpresentationfordistribution.pdf. 9. “A wave of mostly white voters is reshaping the politics of D.C.,” Paul Schwartzman and Ted Mellnik, Washington Post, March 7, 2015, accessed at http://www.washingtonpost.com/local/dc-‐politics/a-‐mostly-‐white-‐youth-‐movement-‐is-‐reshaping-‐ politics-‐in-‐the-‐district/2015/03/07/e57f95b2-‐b6d3-‐11e4-‐aa05-‐1ce812b3fdd2_story.html?hpid=z2. 10. “2014 Washington/Baltimore Multifamily Market Overview,” Delta Associates, October 3, 2014, 18th Annual Washington/Baltimore Multifamily Market Overview & Awards for Excellence, Washington, D.C., accessed at https://www.deltaassociates.com/media/files/14123484152014apartmentmktpresentationfordistribution.pdf. 11. “Gentrification in America Report,” Mike Maciag, Governing, February 2015, accessed at http://www.governing.com/gov-‐ data/gentrification-‐in-‐cities-‐governing-‐report.html. 12. “D.C. Mayor: Our city is going to keep growing,” Morning Joe, MSNBC, July 21, 2015, accessed at http://www.msnbc.com/ morning-‐joe/watch/dc-‐mayor-‐-‐our-‐city-‐is-‐going-‐to-‐keep-‐growing-‐488469059837. 13. “Second Quarter 2015 Washington Area Housing Outlook,” Delta Associates, 2015. 14. “DC Metro sales prices just miss record high in June,” Corey Hart, RealEstate Business Intelligence, July 10, 2015, accessed at http://www.rbintel.com/blog/dc-‐metro-‐sales-‐prices-‐just-‐miss-‐record-‐high-‐june. 15. “Home sales in D.C. region reach housing boom heights,” Kathy Orton, Washington Post, July 10, 2015, http://www.washingtonpost.com/blogs/where-‐we-‐live/wp/2015/07/10/home-‐sales-‐in-‐d-‐c-‐region-‐reach-‐housing-‐boom-‐ heights/. 16. Ibid. 17. “Second Quarter 2015 Washington Area Housing Outlook,” Delta Associates, 2015. 18. “State of the Washington Class A Apartment Market: First Quarter 2015,” Delta Associates, 2015, accessed at https://www.deltaassociates.com/media/files/1428423165classa-‐infographics-‐q1-‐2015.pdf. 19. “Why Demand Will Keep Up with Construction in DC’s Apartment Market,” Urban Turf Staff, July 22, 2015, Urban Turf, accessed at http://dc.urbanturf.com/articles/blog/why_demand_will_keep_up_with_building_in_dcs_apartment_ market/10152. ABOUT GREAT JONES CAPITAL Great Jones Capital is an active residential real estate lender and investor based in Washington D.C. Our firm was founded on the belief that Washington is a world-‐class city with unparalleled investment opportunities. We provide both debt and equity investments for projects that will positively impact the communities where we work and create long-‐term value for our investors. We also provide value-‐added advisory services to our borrowers such as project management, budgeting and sourcing. With over 50 years of combined experience in real estate and banking, we have earned a reputation within the industry for our integrity, creativity, and discipline.
- 9. 9 20. “Housing the Region’s Future Workforce: 2012-‐2032,” Lisa Sturtevant and Jeannette Chapman, Center for Regional Analysis at George Mason University School of Public Policy, December 2013, accessed at http://cra.gmu.edu/pdfs/studies_reports_ presentations/Housing_the_Regions_Future_Workforce_2012.pdf. 21. Ibid. 22. Ibid. 23. “The Greater Washington Region’s Future Housing Needs: 2023,” Jeannette Chapman, Center for Regional Analysis at George Mason University School of Public Policy, June 2015, http://cra.gmu.edu/pdfs/studies_reports_presentations/The_Regions_ Future_Housing_Needs_2015.pdf. 24. “Unless Washington Makes It Easier to Build, We’re All In Trouble,” Marisa M. Kashino, Washingtonian, April 6, 2015, http://www.washingtonian.com/blogs/openhouse/development/unless-‐washington-‐makes-‐it-‐easier-‐to-‐build-‐were-‐all-‐in-‐ trouble.php. 25. D.C. Office of Planning, “Height Master Plan for the District of Columbia,” November 20, 2013, Government of the District of Columbia, accessed at https://www.ncpc.gov/heightstudy/docs/District's%20Height%20Master%20Plan%20FINAL%20 Recommendations%20Report_Nov%2020%202013.pdf. 26. Ibid. 27. This analysis assumes that all property tax revenue goes towards expenses. Calculation takes into account inflation rates projected by the Congressional Budget Office through 2025 (using the PCE index) and a continued 2 percent inflation rate from 2025 to 2032. Analysis uses the city’s growth projections for real property tax revenue through Fiscal Year 2019, accessed at http://cfo.dc.gov/sites/default/files/dc/sites/ocfo/release_content/attachments/Revenue%20Certification%20 Letter_Feb%202015.pdf. 28. Analysis assumes that the spending priorities of the mayor’s proposed 2016 budget (i.e. 25 percent of the to schools, 27 percent to human resources and low-‐income programs, 9 percent to public works) continues through 2032, and that all property tax revenue goes towards expenditures. Calculation takes into account inflation. Spending priorities analyzed by DC Fiscal Policy Institute, accessed at http://www.dcfpi.org/wp-‐content/uploads/2015/04/FY-‐2016-‐Proposed-‐Overview.pdf. 29. “What’s Up with the Flipping market?” Troy Martin, Redfin, June 19, 2014, accessed at https://www.redfin.com/research/ reports/special-‐reports/2014/whats-‐up-‐with-‐the-‐flipping-‐market.html#.VcOKx5NVhBc. 30. D.C. Office of Revenue Analysis, “District’s residential property assessments grew by 6 percent,” Yesim Sayin Taylor, March 3, 2015, Government of the District of Columbia: District, Measured, accessed at http://districtmeasured.com/2015/03/03/ districts-‐residential-‐property-‐assessments-‐grew-‐by-‐6-‐percentpro/. 31. “Residential, Retail Will Replace Surface Parking Lot at Fort Totten,” Aaron Wiener, Washington City Paper, March 10, 2015, accessed at http://www.washingtoncitypaper.com/blogs/housingcomplex/2015/03/10/residential-‐retail-‐will-‐replace-‐surface-‐ parking-‐lot-‐at-‐fort-‐totten/. 32. “Totten Mews,” Comstock Holding Companies, Inc., accessed at http://comstockhomes.com/property/totten-‐mews/. 33. “Petworth Deemed Hottest Neighborhood for House Flipping in 2013,” Lark Turner, Urban Turf, June 19, 2014, accessed at http://dc.urbanturf.com/articles/blog/petworth_was_the_hottest_market_for_flips_in_the_country_in_2013/8637. 34. “Home Price Watch: Petworth, Where Prices Are Up 23 Percent,” Lark Turner, April 22, 2015, accessed at http://dc.urbanturf.com/articles/blog/home_price_watch_petworth_where_prices_are_up_23_percent/9797. 35. “Where We Live: D.C.’s Petworth neighborhood,” Amanda Abrams, Washington Post, October 11, 2013, accessed at http://www.washingtonpost.com/realestate/where-‐we-‐live-‐dcs-‐petworth-‐neighborhood/2013/10/10/6634d1fa-‐0c39-‐11e3-‐ 9941-‐6711ed662e71_story.html. 36. “16-‐Unit Apartment Project Planned for Brightwood,” Urban Turf, July 13, 2015, http://dc.urbanturf.com/articles/blog/16-‐ unit_apartment_project_planned_for_brightwood/10112. 37. “Neighborhood profile: Brightwood Park, balancing history with a boomlet,” Amy Reinink, Washington Post, February 7, 2014, accessed at http://www.washingtonpost.com/realestate/neighborhood-‐profile-‐brightwood-‐park-‐balancing-‐history-‐with-‐a-‐ boomlet/2014/02/06/8f481fb8-‐883d-‐11e3-‐a5bd-‐844629433ba3_story.html. 38. “Home Price Watch: Prices Jump 13 Percent in Brightwood,” Tianna Manon, Urban Turf, June 29, 2015, accessed at http://dc.urbanturf.com/articles/blog/home_price_watch_prices_jump_13_percent_in_brightwood/10055. 39. “Second Quarter 2015 Washington Area Housing Outlook,” Delta Associates, 2015. 40. “Why Demand Will Keep Up with Construction in DC’s Apartment Market,” Urban Turf Staff, July 22, 2015 Urban Turf, accessed at http://dc.urbanturf.com/articles/blog/why_demand_will_keep_up_with_building_in_dcs_ apartment_market/10152.